THE UNITED REPUBLIC OF TANZANIA NATIONAL AUDIT OFFICEdocuments.worldbank.org/curated/en/967891509718815045/... · 2017-11-04 · the united republic of tanzania national audit office

THE UNITED REPUBLIC OF TANZANIA

NATIONAL AUDIT OFFICE

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REPORT OF THE CONTROLLER AND AUDITOR GENERAL ON THECONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS OF

TANZANIA ELECTRIC SUPPLY COMPANY LIMITED FOR THE YEARENDED 3 0 TH JUNE 2016

The Controller and Auditor General

National Audit Office, Tanzania KPMG

Samora Avenue/Ohio Street 2nd Floor, The Luminary

P.O. Box 9080 Plot No. 574 Haile Selassie Road

Dar Es Salaam P. O Box 1160

ON Tel: 255 (022) 2115157/8 Dar es Salaam, Tanzania

Fax: 255 (022) 2117527 Tel: +255 22 2600330/90

E-mail: ocaanao.qo.tz

Website: www.nao.go.tz

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CONTENTS PAGE

NAO Vision and Mission Statements n

Abbreviations ii

Report of Directors 1 - 27

Statement of Directors' Responsibilities 28

Declaration of Head of Finance 29

Report of the Controller and Auditor General 30 - 32

Consolidated and Separate Financial Statement:

Consolidated and Separate Statements of Profit or Loss and Other 33Comprehensive Income

Consolidated and Separate Statements of Financial Position 34 - 35

Consolidated and Separate Statements of Changes in Equity 36 - 39

Consolidated and Separate Statements of Cash Flows 40

Notes to the Consolidated and Separate Financial Statements 41 - 116

Office of the Controller and Auditor General,

National Audit Office,

The United Republic of Tanzania

(Established under Article 143 of the Constitution of the URT)

The statutory duties and responsibilities of the Controller and Auditor General are givenunder Article 143 of the Constitution of the United Republic of Tanzania and amplified in thePublic Audit Act of 2008.

Vision

To be a centre of excellence in public sector auditing.

Mission

To provide efficient audit services to enhance accountability and value for money in thecollection and use of public resources.

In providing quality services, NAO is guided by the following Core Values:

v Objectivity: We are an impartial organization, offering services to our clients in anobjective, and unbiased manner;

V Excellence: We are professionals providing high quality audit services based onbest practices;

/ Integrity: We observe and maintain high standards of ethical behavior and the ruleof law;

V People focus: We focus on stakeholders' needs by building a culture of goodcustomer care and having competent and motivated work force;

1 Innovation: We are a creative organization that constantly promotes a culture ofdeveloping and accepting new ideas from inside and outside the organization; and

V Best resource utilisation: We are an organisation that values and uses publicresources entrusted to it in efficient, economic and effective manner.

We do this by:-

* Contributing to better stewardship of public funds by ensuring that our clients areaccountable for the resources entrusted to them;

* Helping to improve the quality of public services by supporting innovation on the useof public resources;

* Providing technical advice to our clients on operational gaps in their operatingsystems;

* Systematically involve our clients in the audit process and audit cycles; and

* Providing audit staff with adequate working tools and facilities that promoteindependence.

ABBREVIATIONS

ACGC Audit Corporate & Governance Committee

KtW Kreditanstalt (Or WiederaufbauAfDB African Development Bank

Km KilometersADF African Development Fund

KV Kilo VoltsARC Audit and Risk Committee

AFD Agence Francaise de Developpement LPF Local Authority Pension Fund

AMR Automatic Meter Reader LPUs Large Power Users

BTIP Backbone Transmission Investment Project LOTO Lock Out and Tag Out

CAG Controller and Auditor General LV Low Voltage

CCTV Closed Circuit Television MW Mega Wat

CG Corporate Governance MVA Mega Volt Amp

CGC Corporate and Governance Committee MV Medium Voltage

MV Motor VehicleCMS Corporate Management System

NBAA National Board of Accountants and AuditorsCPR Cardiopulmonary Resuscitation

CWIP Capital Work in Progress NCI Non-Controlling Interest

NEMC National Environmental Management CouncilDROC Disaster Recovery Data Centre

DPRP Disaster Preparedness and Response Plan NSSF National Social Security Fund

EDCF Economic Development Cooperation Fund NOK Norwegian Kroner

0MG One Minute GoalEIB European Investment Bank

PABX Private Automatic Branch ExchangeEMS Environmental Management Systerm

EPPs Emergency Power Producers PPEs Property, Plant and Equipment

PPF Parastatals Pension FundESIA Environmental and Social Impact Assessment

ESMP Environmental and Social Management Plan PMU Procurement Management Unit.

Eol Expression of Interest PAPs Project affected persons

ERP Enterprise Resource Planning PSMP Power System Master Plan

PSPF Public Service Pensions Fund3E Eclipse Enterprise Edition.

RAP Resettlement Action PlanGEPF Government Employees Pensions Fund

GIS Geographical Information System REA Rural Energy Agency

HRRC Human Resources and Remuneration Committee REF Rural Energy Fund

RPU Revenue Protection Units[AS International Accounting Standards

ICT Information and Communication Technology RoW Right of way

FC International Finance Company SCADA Supervisory Control and Data Acquisition

SCBHK Standard Chartered Bank H-ong KongIFRIC International Financial Reporting Interpretations

Committee SDR Special Drawing Rights

IFRS International Financial Reporting Standards SEA Strategic Environmental Assessment

ISMS Integrated Security Management System SEPC Shanghai Electric Power Company Limited

IPOC Investment, Planning and Operations Committee SPGC Shanglan Power Generation Company Limited

IPPS Independent Power Producers TEDAP Tanzania Energy Development and Access

JPTL Independent Power Tanzania Limited Expansion Project

IPMPLS Internet Protocol Mti-Prolocol Label Switch TGDC Tanzania Geothermal Development Company Limited

TL Transmission lineJICA Japan International Development Agency

ZTK Zambia - Tanzania - Kenya power interconnectorKAWEU Kampeni Kamata Wezi wa Umeme project

III

TANZANIA ELECTRIC SUPPLY COMPANY LIMITED

REPORT OF THE DIRECTORS

The Directors submit their report together with the consolidated and separate financial statementsfor the year ended 3 0 th June 2016, which disclose the state of affairs of Tanzania Electric SupplyCompany Limited (the "Company" or "TANESCO") and its subsidiary - Tanzania GeothermalDevelopment Company Limited( together, the "Group" as at that date).

1. INCORPORATION

The Company is incorporated in Tanzania under the Companies Act, 2002 as a limited liabilityCompany. Having all its shares held by the Government of the United Republic of Tanzania, it is apublic corporation governed by the Public Corporations Act, revised edition 2002.

The subsidiary company was incorporated on 19th November 2013 as a limited liability company.The subsidiary is 100% owned by TANESCO.

2. CHANGE OF REPORTING PERIOD

In 2015, the Company changed the reporting period to 3 0th June from 31 St December in order toalign its financial year to the Government's fiscal year as per Treasury circular number 11 of financialyear 2014/2015. As a result, the comparative period is 18 months to 3 01h June 2015 while the currentperiod which ended on 3 0th June 2016 covers 12 months. Therefore, the amounts presented in thefinancial statements are not entirely comparable.

3. VISION STATEMENT

To be an efficient and commercially focused utility supporting the development of Tanzania, and tobe a power house of East Africa.

4. MISSION STATEMENT

To generate, purchase, transmit, supply and sell electricity in the most effective, competitive andsustainable manner possible.

5. PRINCIPAL ACTIVITIES

The Company's principal activities are generation, purchasing, transmission, distribution and sellingof electricity to the Mainland Tanzania as well as bulk supply to Zanzibar and neighboring countries.Electricity is generated at seven (7) hydro power plants (namely Kidatu, Mtera, Kihansi, NewPangani, Hale, Nyumba ya Mungu and Uwemba) and twenty four (24) thermal power plants(namely Kinyerezi 1, Ubungo 1 Gas Plant, Tegeta Gas Plant, Ubungo 2 Gas Plant, Nyakato60MW power plant at Mwanza, Zuzu at Dodoma, Biharamulo, Bukoba Urban, Kasulu, Kibondo,Kigoma Urban, Liwale, Loliondo, Ludewa, Mafia, Mbinga, Mpanda, Mtwara, Namtumbo, Ngara,Somanga, Songea, Sumbawanga and Tunduru). All hydro power plants and six (6) thermal powerplants are connected to the National grid.

The Company imports power from Uganda, Kenya and Zambia and, in turn, exports power to Kenya.The Company has long term power purchase agreements with Independent Power Producers(IPPs), namely Independent Power Tanzania Limited (IPTL), Songas Limited, Tanganyika WaftleCompany Limited (TANWAT), TPC Limited, Andoya Mwenga, Tulila, lyovi and Ngombeni.

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REPORT OF THE DIRECTORS (CONTINUED)

5. PRINCIPAL ACTIVITIES (CONTINUED)

Revenue of the Company decreased from Shs. 1,957,756 million in the 18-month period ended 3 0th

June 2015 to Shs. 1,379,740 million, which represents an annualised increase of 6%.

i) Projects implemented/ continued to be implemented during the year:

a) In collaboration with Rural Energy Agency (REA), electrification projects in all regions of MainlandTanzania that will reach 2,500 villages in 133 districts as well as electrifying un-electrified districtheadquarters. Under this project, construction of 15,457.11 kilometers of Medium Voltage (MV)power distribution lines; 9,520.98 kilometers of Low Voltage (LV) lines; installation of 3,580distribution transformers and connection of 250,000 initial customers will be undertaken. The totalcost for this project funded by the Government through Rural Energy Fund (REF) is estimated to beShs 881 billion. Up to June 2016, the project was completed by 95% and all district headquarters forChemba, Nyasa, Kyerwa, Kalambo, MIele, Buhigwe, Uvinza, Kakonko, Malinyi, Itilima and Mkalamawere electrified. All districts in Katavi region have been electrified except Tanganyika district.Construction of 14,235.85km out of 15,457.11km MV line, 8,319km out of 9,520.98km LV line,installation of 3,145 out of 3,580 distribution transformers were already completed by end of June2016. Also 99,155 out of 249,884 earmarked customers were connected with power.

b) The implementation of the ongoing Backbone Transmission Investment Project (BTIP); mainly, theconstruction of 400kV transmission line and its substations from Iringa to Shinyanga. It also includesRural Village Electrification initiative component along the backbone project. The Project is financedby the Government and other multilateral donor agencies. The project is completed.

c) Installation and upgrading of 11/33kV substations at Kigoma (5 MVA), Kasulu (3 MVA), Kibondo (3MVA), Ngara (3 MVA), Mbinga (3 MVA) and Tunduru (3 MVA) was completed by end of the year.

d) The ongoing Tanzania Energy Development and Access Expansion Project (TEDAP). The objectiveof the project is to improve the quality and efficiency of the provision of electricity service in thecountry and to establish a sustainable base for energy access expansion. The project is financed byIDA Credit of SDR 67,700,000 (sixty-seven million seven hundred thousand Special DrawingRights), of which SDR 49,800,000 has been allocated to TANESCO as a grant for implementingsome components of the project.

e) Electricity V - Package III Construction and Rehabilitation of substation works in Dar es Salaam andArusha regions and extension of Distribution Networks in Mwanza and Shinyanga regions. Contractprice for substation works was USD 8 Million while contract price for Distribution works was USD 18million.

Distribution component scope of work involved construction of 480km of 33kV medium voltage lines,231km of 0.4kV low voltage lines; installation of 102 pieces of 33/0.4kV distribution transformers andstreet lights at distribution transformers and connection of about 8,421 customers. The works werecompleted on 31st May 2016.

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i) Projects implementedl continued to be implemented during the year (Continued):

f In the substation component works involved installation of 2 x 50MVA, 132/33kV PowerTransformers at Njiro substation in Arusha Region and 1 x 15 MVA, 33/11 kV transformer at Sokoineand Ilala substations in Dar es Salaam. The works were completed on 31s December 2015.

g) Supply of Wood Pole, Distribution Materials and Diggers Derricks for Electricity V Project in Mwanzaand Shinyanga Regions - Lot 1, 2 and 3 component respectively. Lot 1, 2 & 3 were all deliveredduring the year and the project was completed in June 2016.

h) Distribution component additional scope consists of construction of 30km of 33kV, 100km of 0.4kVdistribution lines, installation of 95 distribution Transformers, connection of 15,000 customers inMwanza and Shinyanga Regions.

i) Construction of a 150MW gas-fired power plant to be installed at Kinyerezi 1. This project wascompleted in March, 2016.

j) Construction of a 240MW combined cycle gas-fired power plant to be installed at Kinyerezi II.Construction of the project started November 2016 and expected to be completed in 2018.

k) Construction of 185MW Kinyerezi I extension gas fired power plant at Kinyerezi. The project startedNovember 2016 and expected to be completed in 2018.

I) The construction of Bulyanhulu - Geita - Nyakanazi 220 kV Transmission Line. This projectcomprises of construction of Bulyanhulu to Geita 100km Transmission line (including electrification ofvillages along the line corridor), which is on re-evaluation stage (PMU).

m) The construction of 132kV underground cable in Dar es Salaam from Ilala - City Centre -Makumbusho, installation of 2x50 MVA transformers and construction of 132/33kV substation at Dares Salaam City Centre, construction of Supervisory Control and Data Acquisition (SCADA)Distribution Control Centre at Mikocheni for Monitoring the 28 distribution substations in Dar esSalaam and construction of 33kV network from City Centre to Sokoine Drive and Railways HeadQuarters 33/11 kV substations. The project is financed by the Government of Finland in collaborationwith the Government of Tanzania. The project is completed.

n) Construction of the second 132kV Transmission line (70km long) from Kilimanjaro to Arusha and therehabilitation of Kiyungi Substation. The project is financed by Economic Development CooperationFund (EDCF) from the Republic of South Korea and was completed in December, 2015.

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i) Projects implementedl continued to be implemented during the year (Continued):

o) The review of transmission line from 220kV to 400kV, negotiation for the project conducted in July2017. ESIA certificate for Mbeya- Sumbawanga portion was obtained and that of Mpanda - Kigoma -Nyakanazi portion is under process. TANESCO received compensation schedule for new Mbeyasubstation plot. Payment is underway. Solicitation of financing from Development Partners is

ongoing.

p) Electrification of Rural Tanzania through ORIO project which involve construction and Installation of2.5MW generating sets, construction of distribution network at Biharamulo, Mpanda and Ngara. Theproject total cost is Euro 32.8 million which involves development phase, implementation phase,Operation and maintenance phase. Biharamulo and Ngara were completed in October 2016. ForMpanda installation of generator is completed and construction of lines continues and will becompleted in 2017.

q) Construction of 400kV Singida - Arusha - Nairobi Interconnector line. Government has concludedFinancing Agreements with Lenders (African Development Bank (AfDB) and Japan InternationalDevelopment Agency (JICA) for the Project. Demarcation of right of way (RoW) boundaries andvaluation of properties for compensation to project affected persons (PAPs) from Singida toNamanga has been completed. Procurement of consultancy services and EPC contracts for theworks (Lot 1-3) has been initiated. The project is expected to be completed in June, 2019.

r) Rehabilitation of protection and control system at Singida expected to be completed in December2017.

s) Installation of 45MVA, 220/33kV transformer at Kidatu was completed in July 2017, also,rehabilitation and upgrade of Musoma, Nyakato, Sabasaba 33/11 kV substations is expected to becompleted in December 2017.

t) Capacity building and Emergency repair of six hydro power plants in Tanzania namely Kidatu,Kihansi, Mtera, Pangani, Hale and Nyumba ya Mungu. The Total Project cost was 67.5 millionNorwegian Kroners financed by Government of Norway but the actual project cost for repair worksexceeded the grant facility by Euro 1.5 million and thus TANESCO has to pay the difference. The

project is expected to be completed in December, 2017.

u) Level B-Maintenance and upgrade of three Gas Turbines at Ubungo -II Gas Plant from 35MW to43MW. The Total project cost is SEK 216,375,164. The maintenance and upgrade for unit no.2 andunit no.3 was completed in April, 2016 and Unit no. 1 was completed in December 2016.

v) Upgrade of Ubungo - Kipawa 132kV transmission line by stringing the second circuit on existingtowers. Installation and commissioning of busbar protection at Kidatu is completed by 95%,installation and Commissioning of 45MVA transformer at Tanga and Chato 33kV switching stationare expected to be completed in 2018.

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i) Projects implemented( continued to be implemented during the year (Continued):

w) Rehabilitation of ten (10) substations under AFD financing and optical fiber network extension phase2 is on tendering for consultant stage and it is expected to be completed in June 2019. The projecttotal cost is estimated to be Euro 53 million.

ii) Other projects implemented during the year include:

a) Construction of 132kV Mtwara - Lindi transmission line and associated substations was completedin July 2017.

b) Reinforcement of power distribution in Dar es Salaam operational regions including installation oftwo 60MVA 132/33kV transformers at Ilala substation, stringing of the second transmission line on132kV from Ubungo to lIala; expansion of Msasani substation through installation of one 15MVA33/11kV transformer and construction of three new substations of 15MVA 33/11kV at Jangwanibeach, Muhimbili and Mwananyamala. The project is completed.

c) Rolling out of Geographical Information System (GIS) database in four regions of liala, KinondoniNorth, Coast and Temeke. The database will enhance network planning, network analysis, networkoperations, optimization of the network as well as asset management. The project was completed inJune 2016 for Kinondoni North and Ilala regions. Temeke and Coast regions have been completedin 2017.

d) Installation and commissioning of busbar protection at Kidatu was completed in June 2017. The costof the project was USD 445,168.

e) Installation and Commissioning of 45MVA transformer at Tanga is expected to be completed inDecember 2017.

f) Upgrade of Ubungo - Kipawa 132kV transmission line; stringing the second circuit on existingtowers. Lot 1 is on progress while lot 2 is on shipment. It is expected to be completed in 2018.

g) Upgrade of Optical Fiber network software and hardware to IPMPLS expected to be completed in2017. The cost of the project is estimated to be USD 1.6 million.

h) Supply, installation and commissioning of PABX for Head office and Branches and it is onimplementation stage and is expected to be completed in December 2017. The cost of the project isShs. 2.5 billion.

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ii) Other projects implemented during the year include (Continued):

i) LUKU upgrade to 3E, hardware, software and staff training: The system was upgraded from EclipseManager to Eclipse Enterprise Edition in order to have no limitation of number of customers. Initiallythe system was only able to handle not more than 900,000 customers. The cost of the project wasEuro 1,694,740.73 and was completed in April 2016.

The operational performance of the Company can be summarized as follows:

Plan Actual Actual Percentage12 12 18 change

months to months to months to from prior30e June 30 h June 3 0 th June Period

2016 2016 2015Service lines completed during the 250,000 278,062 309,250 -10%year/periodNumber of pending service line - 26,667 55,196 -52%applicationsUnits sold during the year/period (million) 6,142 5,549 7,727 -27%Additional 33kV and 11kV lines during 12,003 11,036 1,148 861%the year/period (km)Total length of 33Kv and 11kVdistribution lines completed during the 31,939 30,972 20,852 49%year/period (km)Total length of low voltage lines by the 34,560 97,956 40,822 140%end of the year/period (km)Distribution transformers installed during 2,300 2,039 1,214 68%the year/periodTotal number of distribution transformers 14,640 14,379 12,340 17%by the end of the year/period

Total number of consumers by the end of 1,751,162 1,743,820 1,473,217 18%the year/period

Total number of staff 7,488 5,990 6,328 -5%

Ponsumer/staff ratio 206 194 241 -20%

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The Company has been experiencing a number of operational challenges in serving its customers.These challenges together with strategies used to address them are outlined below;

(a) Reliability and quality of power

The rehabilitation and maintenance of generation, transmission and distribution networks continuedto be carried out during the period in order to improve quality and reliability of power. During the yearended 3 0th June 2016 Shs 54,442.67 million was used in the rehabilitation and maintenance ofassets.

(b) Power loss through meter tampering and stopped meters.

The progress on the project to install the Automatic Meter Reader (AMR) meters for Large PowerUsers (LPUs) (Tariff 2 and Tariff 3) as well as Medium Power Users (Tariff 1 customers using three -phase meters), as at 30h June 2016 was as follows:-

(i) Tariff 3: The cumulative number of customers installed with AMR meters as of 3 0th June 2016 is 602(By 3 0th June 2015 it was 536 meters),

(ii) Tariff 2: The cumulative number of customers installed with AMR meters as of 3 0th June 2016 is2,665 (By 3 0 th June 2015 it was 2509 meters),

(iii) Tariff 1: The cumulative number of customers installed with AMR meters as of 3 0 th June 2016 is17,672 (By 3 01h June 2015 it was 19,688 meters). The number went down as some of the customerswere transferred to LUKU meters.

During the year from 1 st July 2015 to 3 0 th June 2016 the AMR meters realized the following benefits;

1. Decrease in number of cases of energy thefts by large power users in comparison with when'conventional' electromechanicallelectronic meters were in use. For instance, no incidence of AMRmeter tampering was reported by the revenue protection team for T3 customers from 1st July 2015 to30th June 2016.

2. Increase of average monthly revenue collection due to increased number of Tariff 1 customers withAMR Meters. These can be disconnected remotely whereby 4,036 TI AMR-metered customers wereremotely disconnected with debt amounting to Shs. 3,287,853,457 and 2,824 AMR Meters wereremotely reconnected after payment, in which a total of Shs. 1,448,006,874 was collected.

3. Accuracy of meter reading has extremely improved.

4. Giving clear and actual meter readings in different measurement levels (Primary Substations,feeders, boundaries, secondary substations and generation plants.

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Management of energy losses

Energy losses reflect the difference between the quantity of energy sent out from the power stationsand the quantity sold to various customers at the end of the value chain. The losses are categorisedas technical or non-technical in nature.

Total losses were:Target Actual Actual

12 months 12 months 18 monthsto 30e to 30th to 3 0m

Energy losses June 2016 June 2016 June 2015

Distribution loss (%) 11.9% 11.2% 12.1%Transmission loss (%) 6.1% 6.2% 6.1%

Total loss% 18.0% 17.4% 18.2%

Meter audit through Revenue Protection Units (RPUs)

During the year Company's Revenue Protection Units (RPUs) continued to carry out the operationalcampaigns against energy theft, known as 'Kampeni Kamata Wezi wa Umeme (KAWEU)" in allregions.

Out of the 154,056 customers inspected during the period 2,577 customers equivalent to 1.67% ofall customers inspected had metering discrepancies. A total of Shs 8,360 million was established asrevenue loss. The Company billed the amounts and the same is being collected.

(a) Vandalism of infrastructures including theft of distribution lines cables and transformer oil

The Company continued to strengthen the national task force by improving collaboration with thecommunities including providing incentives to citizens who provide information on vandalism andpower theft. During the year the Company continued to pursue the following activities in the front:

(i) Public sensitization and education on effects of vandalism to infrastructure;Education on public awareness was conducted to 418 villages in 18 regions of Coast, Mbeya,Singida, Tabora, Kilimanjaro, Lindi, Mtwara, Katavi, Mara, Arusha, Dodoma, Kagera, Tanga, Geita,Simiyu, Shinyanga, Njombe and Kigoma. The same was done to 35,406 students of 19 primaryschools, 16 secondary schools and 6 colleges;

(ii) Frequent patrol and inspection by TANESCO and the Police Force on various transmission anddistribution lines;

(iii) Installation of dry transformers especially in areas where transformer oil theft was rampant; and

(iv) Enhance the Village Guarding Contracts along transmission lines.

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6, COMPOSITION OF THE BOARD OF DIRECTORS

The directors of the Company at the date of this report, and whom have served since 1St July 2015are:Name Position Qualificationsl Nationality Appointed/ Date

Disciplines resigned appointedlresigned

Dr. Alexander. Chairman Ph.D. (Electrical Tanzanian Appointed 3 0 th May 2016L. Kyaruzi Engineering)

Consulting EngineerAmb. Dr. James Member Ph.D. (Economic Tanzanian Appointed 4 th Aug 2016Mwasi Nzagi Science and Economic

Management)Mr. David E. Member CPA(NBAA) Tanzanian Appointed 3 0 th May 2016Alal MBA (Finance)M/s Anna B. Member LLM Oil and Gas Law Tanzanian Appointed 9th Jan 2017NgowiEng. Gilay C. Member MSc. (Engineering Tanzanian Appointed 9th Jan 2017Shamika Management)Dr. Lugano Member Ph.D. (Energy Tanzanian Appointed 301h May 2016Wilson Engineering),

Ph. Licentiate(Engineering)

Dr. Mighanda J. Chairman Ph.D. (EMC/ Tanzanian Resigned 7 h Mar 2016Manyahi Electrical Transients

and Discharges andSenior Lecturer UDSM

Dr. Haji Deputy Ph.D. (Energy Tanzanian Resigned 71h Mar 2016Semboja Chairman Economics)

Senior Economist -Research Policy

Dr. Nyamajeje Member Ph.D. (Economics) and Tanzanian Resigned 7 th Mar 2016C. Weggoro Presidential Advisor

Dr. Mutesingwa Member Ph.D. (Electrical Tanzanian Resigned 7th Mar 2016Maingu Engineer) and CEO -

Alpha Crown ElectricsLimited

Eng. Juma F. Member MSc. (Engineering Tanzanian Resigned 7 1h Mar 2016Mkobya Management) Ministry

of Energy and MineralsMr. Shaaban Member MSc. (Sustainable Tanzanian Resigned 71h Mar 2016Kayungilo Energy and Management)

Marketing Manager -ENGEN Petroleum (T)Limited

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6. COMPOSITION OF BOARD OF DIRECTORS (CONTINUED)

Name Position Qualificationl Nationality Appointed/ Date appointedlDiscipline resigned resigned

Ms Kissa Member MBA and Director of Tanzanian Resigned 71h Mar 2016Kilindu Employment Services -

Tanzania EmploymentServices Agency(TaESA)

Mr. Felix G. Member LL.M and Advocate of Tanzanian Resigned 7th Mar 2016Kibodya High Court of TanzaniaEng. Member MSc. (Engineering) and Tanzanian Resigned 7th Mar 2016Boniface C. Registered ConsultingMuhegi EngineerEng. Member MSc. (Mechanical Tanzanian Resigned 9th Jan 2017Stephen P. Engineering)MabadaEng. Leonard Member MSc. (Hydropower Tanzanian Resigned 9h Jan 2017R.Masanja Development)Dr. Samuel Member Ph.D. (Vehicle Tanzanian Resigned 4th Aug 2016Nyantahe Dynamics)

7. CORPORATE GOVERNANCE

The current Board of Directors consists of six (6) directors, all of whom are non-executive. TheBoard takes overall responsibility for the Company, including responsibility for identifying key riskareas, considering and monitoring investment decisions, considering significant financial matters,and reviewing the performance of Company business plans and budgets. The Board is alsoresponsible for ensuring that a comprehensive system of internal control policies and procedures isoperative, and that the Company complies with sound corporate governance principles.

The Board is required to meet at least four (4) times a year. The Board delegates the day to daymanagement of the business to the Managing Director assisted by senior management. Members ofsenior management are, from time to time, invited to attend board meetings in order to facilitate theeffective control of Company's operational activities, as they act as a medium of communication andcoordination with the various business units.

During the year ended 3 0 1h June 2016, the CGC, HRC and the ARC were formed out of the formerACGC and HRRC. The purpose was to comply with the new Corporate Governance philosophy thatrequires audit and risk matters to be transacted independent of any other business.

The Company is committed to the principles of effective corporate governance The directors alsorecognize the importance of integrity, transparency and accountability. During the year ended 301hJune 2016, the Board of Directors had the following board sub-committees to ensure a high standardof corporate governance in running the Company.

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7. CORPORATE GOVERNANCE (CONTINUED)

(i) Corporate and Governance Committee (CGC)

The CGC deals with all finance and administration matters of the Company. The matters were beingdealt with by the formally Audit Corporate & Governance Committee (ACGC).

The following are the members of the committee:

Name Position Qualification Nationality Appointed/ DateIDiscipline Resigned appointedl

resignedDr. Lugano Chairman Ph.D. (Energy Tanzanian Appointed 3 0 h May 2016Wilson Engineering), Ph.

Licentiate (Engineering)Mr. David E. Member CPA (NBAA) Tanzanian Appointed 3 0th May 2016Alal MBA (Finance)

M/s Anna B. Member LLM Oil and Gas Law Tanzanian Appointed 91h Jan 2017Ngowi

Dr. Chairman Ph.D. (Economics) Tanzanian Resigned 71h Mar 2016Nyamajeje Presidential AdvisorC. WeggoroMr. Member MSc. (Sustainable Tanzanian Resigned 7 h Mar 2016Shaaban Energy andKayungilo Management) Marketing

Manager - ENGENPetroleum (T) Limited

Ms. Kissa V. Member MBA and Director of Tanzanian Resigned 7 th Mar 2016Kilindu Employment Services -

Tanzania EmploymentServices Agency(TaESA)

Mr. Felix Member LL.M and Advocate of Tanzanian Resigned 7 th Mar 2016G.Kibodya High Court of Tanzania

Eng. Member MSc. (Mechanical Tanzanian Resigned 91h Jan 2017Stephen P. Engineering)MabadaDr. Samuel Member Ph.D. (Vehicle Tanzanian Resigned 4th Aug 2016Nyantahe Dynamics)Eng. Member MSc. (Hydropower Tanzanian Resigned 9th Jan 2017Leonard Development)R.Masanja

CGC reports to the Board of Directors of the Company. The CGC conducted six (6) ordinarymeetings during the year ended 30th June 2016.

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(ii) Investment, Planning and Operations Committee (IPOC)

IPOC deals with technical matters especially investment planning. The following are the members ofthe IPOC:

Name Position Qualification Nationality Appointed/ DateIDiscipline Resigned appointed!

resignedAmb. Dr. Chairman Ph.D. (Economic Tanzanian Appointed 4 h Aug 2016James Mwasi Science andNzagi Economic)Dr. Alexander Member Ph.D. (Electrical Tanzanian Appointed 3 0 th May 2016L. Kyaruzi Engineering)Eng. Gilay C. Member MSc. (Engineering Tanzanian Appointed 91h Jan 2017Shamika Management)

Dr. Haji H. Chairman Ph.D. (Energy Tanzanian Resigned 7 1h Mar 2016Semboja Economics) and Senior

ResearchPolicy and Economist

Dr. Member Ph.D. (Electrical Tanzanian Resigned 7 1h Mar 2016Mutesingwa Engineer) and CEO -Maingu Alpha Crown Electrics

LimitedEng. Juma F. Member MSc. (Engineering Tanzanian Resigned 7th Mar 2016Mkobya Management) Ministry

of Energy and MineralsEng. Boniface Member MSc. (Engineering) Tanzanian Resigned 7 h Mar 2016C. Muhegi and Registered

Consulting Engineer

Dr. Samuel Member Ph.D. (Vehicle Tanzanian Resigned 4 th Aug 2016Nyantahe Dynamics)

Eng. Leonard Member MSc. (Hydropower Tanzanian Resigned 9th Jan 2017R.Masanja Development)

Eng. Stephen Member MSc. (Mechanical Tanzanian Resigned 9th Jan 2017P. Mabada Engineering)

The IPOC reports to the Board of Directors of the Company. IPOC conducted five (5) ordinarymeetings during the year ended 301h June 2016.

12




(iii) Audit and Risk Committee (ARC)

The ARC deals with Audit and Risk. The following are the members of the ARC committee.

Name Position Qualification Nationality Appointedl DateIDiscipline Resigned appointed/

resignedMr. David E. Chairman CPA (NBAA) Tanzanian Appointed 3 0 th May 2016Alal MBA (Finance)

Dr. Lugano Member Ph. D (Energy Tanzanian Appointed 3 0th May 2016Wilson Engineering), Ph.

Licentiate (Engineering)

Eng. Gilay C. Member MSc. (Engineering Tanzanian Appointed 9th Jan 2017Shamika Management)

The ARC reports to the Board of Directors of the Company. The ARC is a new committee and it didnot conduct any meeting during the year ended 3 0th June 2016.

(iv) Human Resources and Remuneration Committee (HRRC)

The HRRC deals with staff welfares. The following are the members of the ARC committee

Name Position Qualification Nationality Appointedl DateIDiscipline Resigned appointedl

resignedDr. Alexander Member Ph. D (Electrical Tanzanian Appointed 3 0th May 2016L. Kyaruzi Engineering) Consulting

EngineerAmb. Dr. Member Ph.D. (Economic Tanzanian Appointed 4 1h Aug 2016James Mwasi Science and EconomicNzagi

M/s Anna B. Member LLM Oil and Gas Law Tanzanian Appointed 9th Jan 2017Ngowi

The HRRC is a new committee that reports to the Board of Directors of the Company and did notconduct any meeting during the year ended 3 01h June 2016.

13




During the year ended 3 01h June 2016, the Board of Directors had twenty two (22) meetings andfifteen (15) committee meetings as tabulated in the table below:

SIN Meeting Board of Corporate Investment, Audit Risk HumanDirectors and Planning and Committee Resources and

(BoD) Governance Operations (ARC) RemunerationCommittee (IPOC) Committee

(CGC) (HRRC)1. Ordinary 3 6 5 -

meetings2. Special 9 3 1 -

Meetings3. Performance

Evaluation - -Committee ofmeeting

4. Select 8 - - -

Committee ofthe Board ofDirectors

22 9 6 -

14



8. CAPITAL STRUCTURE

The Company capital structure for the year is as shown below.

SHARE CAPITAL 2016 2015Shs 'm Shs 'm

Authorised: Ordinary Shares120,000,000,000 ordinary shares of Shs 20 each 2,400,000 2,400,000

Issued and fully paid:49,335,830,882 ordinary shares of Shs 20 each 986,717 986,717

All the issued and fully paid shares are owned by the Government of Tanzania.

ADVANCE TOWARDS SHARE CAPITAL 12 months 18 monthsto 301 to 30e

June 2016 June 2015Shs'm Shs'm

At start of year/period 494,316 359,909Received during the year/period 112,435 134,407At end of yearlperiod 606,751 494,316

Advances toward share capital represent capital contributions received from the Government, andthe reserves from the fair value of interest free loans.

9. SHAREHOLDERS OF THE COMPANY

The Company is 100% owned by the Government. The shares of the Company are held as follows:

2016 2015Shares in million Shares in million

Shareholder Ordinary Preference Ordinary Preference

Government of Tanzania 49,336 - 49,336

10. MANAGEMENT

The Management of the Company is under the Managing Director who reports to the Board ofDirectors. The operations are split in the following business units: Generation, Transmission,Distribution and Customer Services, Investment, Finance, Information Communications Technology,Human Resource, Procurement, Legal Counsel and Company Secretariat. There is also anindependent unit of Internal Audit which administratively reports to Managing Director andfunctionally to the ARC.

15



11. FUTURE DEVELOPMENTS

The Company continues to improve its performance by implementing various projects categorized asshort and medium term plans/projects. These short and medium term plans/projects include:Implementing Power System Master Plan (PSMP) lastly updated in 2016 which provides loadforecast, generation, distribution and transmission expansion plans which are categorized into short,medium and long terms.

i) Implementations of projects identified in PSMP are as follows:

a) Construction of another 300MW gas-fired power plant to be installed at Kinyerezi Ill. Thisproject is expected to be completed in 2020. The estimated cost of the project is USD 341million.

b) Construction of a 300MW gas-fired power plant to be installed at Kinyerezi IV phase one. Thisproject is expected to be completed in 2021. The estimated cost of the project is USD 336million.

c) Construction of an 80MW hydro power plant at Rusumo and 220kV transmission line fromRusumo - Nyakanazi. The project is financed by the World Bank and African DevelopmentBank (AfDB) in collaboration with the Government of Tanzania. It is expected to be completedin December 2019.

d) Construction of 44.8MW Malagarasi hydropower project at an estimated cost of USD 150.2million. Request has been sent to the Development Partners for soliciting financing. We arecurrently working on procurement process of consultants for Provision of ConsultancyServices for Detailed Design, Construction Management, Supervision, Testing andCommissioning. The project is expected to be completed in June 2020.

e) Construction of 87MW Kakono Hydropower Project at an estimated cost of USD 379.4 million.Request has been sent to the Development Partners for soliciting financing USD 379.4 million.We are currently working on procurement process of consultants for Provision of ConsultancyServices for Detailed Design, Construction Management, Supervision, Testing andCommission. The project is expected to be completed in June 2020.

16



11. FUTURE DEVELOPMENTS (CONTINUED)

ii) Implementations of projects identified in PSMP are as follows (Continued):

f) Kikonge Multipurpose Dam, Hydropower (300MW) and Irrigation Project AfDB has approved a grantto finance this project with a cost of Euro 1,986,198 from Africa Water Facility, Euro 263,200 fromCRIDIF and Euro 213,000 from Government of Tanzania (GoT) in kind contribution. We are currentlyworking on procurement process of consultants for feasibility studies. The project is on initial stage.

g) Construction of Nyakanazi-Kigoma-Tunduma-Mbeya 400kV power transmission line project will beimplemented in 3 phases: phase one being from Mbeya to Sumbawanga 340km, to be completed in35 months. Phase two from Nyakanazi-Kigoma-Mpanda 568km to be completed in 42 months aftercommencement, and phase three from Mpanda to Sumbawanga 240km to be completed in 26months from commencement. Consultant is at the final stage of completing the review oftransmission line feasibility study from 220kV to 400kV. The final report was submitted in September2016. ESIA certificate for Mbeya- Sumbawanga portion was obtained and that of Mpanda - Kigoma -Nyakanazi portion is under process. TANESCO received compensation schedule for new Mbeyasubstation plot. Payment is underway. Solicitation of financing from Development Partners isongoing.

h) Construction of 220 kV transmission line from Mwanza to Masaka will be implemented jointly by thetwo countries. The Governments of Uganda and Tanzania will solicit funds for implementation of theproject. KfW has agreed to finance Consultancy Service for review and update of feasibility study.Evaluation of the Expression of Interest (Eol) documents and short listing of five (5) highest rankedConsulting firms for bid submittal was done. Submission of the Final pre-Qualification report toTANESCO Tender Board was done for approval and later seeking no objection from KfW in order toinvite the qualified bidders to submit technical and financial proposal.

i) Construction of Dar es Salaam-Chalinze-Tanga Arusha 400kV Transmission Line. This project isexpected to be completed in 30 months after commencement.

j) Construction of 300MW gas fired power plant at Mtwara and transmission line from Mtwara toSomanga. Request has been sent to JICA for development of the project.

k) Construction of wind power plants in Singida by Geo Wind with initial capacity of 50MW and WindEast Africa with capacity of 100MW.

17



11. FUTURE DEVELOPMENTS (CONTINUED)

ii) Other projects include:

a) The Disaster Recovery Data Centre, which will ensure business continuity of ICT operations on theoccurrence of a disaster at the primary site. The systems under this project are Email System,LUKU, iScala (Financial System) and HiAffinity (Billing System) also termed as Business CriticalSystems. The project is completed.

b) Supply, Installation, Commissioning and Configuration of equipment for Corporate Data Centre:Phase 1 of the project was completed in February 2016 and the cost was Shs 1.4 billion. This projectaims at providing reliable infrastructure for business systems. Phase 11 is upcoming and estimated tocost Shs 400 million this will include network infrastructure and other accessories,

c) The Corporate Management System (CMS) project is an enterprise wide project to implement thestate of art Enterprise Resource Planning (ERP). The project will be implemented in phases undersupervision of the consulting firm Deloitte Consulting Ltd. Implementation time is 18 months aftersourcing the contractor. The basic module on financials will be the first to be implemented within oneyear of the project implementation period. The estimated costs covering capex and operatingexpenses in five years is estimated at Shs 86 billion.

d) The Integrated Security Management System project that will encompass three (3) modern securitysystems including, access Control, Intruder Alarm Fence and Closed Circuit Television (CCTV). Theinstallation will cover Head Office, National Grid Control Centre, Kurasini Central Stores and 33kVSubstation at Ubungo. The project is expected to cost USD 1,491,814.50. The project is atadvertisement stage.

12. TRANSMISSION SYSTEM REHABILITATION AND UPGRADES

Completed Projects include the following:

During the year ended 3 0th June 2016 transmission network rehabilitation projects have beencompleted and other projects still in progress, these include;

* Upgrade of 132/33kV Ubungo substation by installing two 90 MVA, 132/33kV and two 15 MVA,

33/11kV Transformers,

* Installation and commissioning of busbar protection at Kihansi,

* Installation and commissioning of busbar protection at Kidatu,

* Construction of new 45MVA, 220/132/33kV Mabuki substation,

* Major overhaul of ABB circuit breakers for the Ubungo, Tegeta,,Chalinze, Hale, Pangani, Tanga

(Majani Mapana), Babati, Mbulu, Karatu, Kondoa and Mtera substations. Total cost for the

project is Shs 2.4 billion.

18



12. TRANSMISSION SYSTEM REHABILITATION AND UPGRADES (CONTINUED)

Completed Projects include the following (Continued);

* Installation of 60MVA, 220/33kV Transformer at Mwakibete Substation in Mbeya still under

defects liability period up to May 2018,

* Installation of 45MVA, 132/33kV Transformer at Chalinze substation. This is one component of

the project for installation of transformers at Mwanza, Shinyanga, Tanga and Chalinze. Total cost

for the project was USD 8.9 million and Shs 2.1 billion,

* Rehabilitation of 220kV Ubungo - Morogoro transmission line by replacing insulators and

improving grounding, and

* Construction of Chato 33kV switching station.

New Construction Projects in Pipeline;

* Extension of Kurasini - Kigamboni 132kV Transmission line and construction of Kigamboni

132/33kV substation,

* Termination and construction of 220/33kV substation at Luguruni, Dar es Salaam,

* Construction of Zuzu - Mbande 132kV transmission line,

* Installation of 300MVA - 220/132/33kV, 35MVA -220/33/11kV and 15MVA - 66/33/11kV

transformers at Ubungo, Mufindi and Sumbawanga substations respectively,

* Supply, installation and commission of 65MVA, 132/33kV transformer at Kunduchi,

* Major rehabilitation of 2 X 150MVA, 220/132/33kV transformers at Ubungo substation,

* Supply, installation and commissioning of Advanced Power Quality Analyzers and PQ Monitoring

System,

* Replacement of aged insulators on 220k32V Shinyanga - Bulyanhulu transmission line and,

* Rehabilitation and upgrade of Musoma, Nyakato - Mwanza and Sabasaba - Mwanza, 33/11 kV

substations.

13. RESULTS AND DIVIDEND

During the year ended 30th June 2016, the Group incurred a net loss of Shs 349,555 million (18month to 3 01t June 2015: Loss Shs 126,066 million). Since there is still significant accumulatedlosses, the directors do not recommend the payment of dividend (3 0h June 2015: Nil).

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14. RISK MANAGEMENT AND INTERNAL CONTROL

In a good Corporate Governance, the key function of the Board of Directors of the Companyenvisioning to examine the internal control and risk management. The board accepts finalresponsibility for the risk management and internal control systems of the Company. It is the task ofmanagement to ensure that adequate internal financial and operational control systems aredeveloped and maintained on an on-going basis in order to provide reasonable assurance regarding;

i. The effectiveness and efficiency of operations;ii, The safeguarding of the Company's assets;

iii. Compliance with applicable laws and regulations;iv. The reliability of accounting records;v. Business sustainability in normal and adverse conditions; andvi. Responsible behaviors towards all stakeholders.

The efficiency of any internal control system is dependent on the strict observance of prescribedmeasures. There is always a risk of non-compliance of such measures by staff. Whilst no system ofinternal control can provide absolute assurance against misstatement or losses, the Companysystem is designed to provide the board with reasonable assurance that the procedures in place areoperating effectively.

The Board assessed the internal control systems throughout the financial year ended 3 0 1h June 2016and is of the opinion that they met accepted criteria.

Company risk management is a process affected by the Board of Directors, management and otherpersonnel, applied in strategy setting and across the Company, designed to identify potential eventsthat may affect the company and manage risk to be within its risk appetite, to provide reasonableassurance regarding the achievement of company objectives.

The Company's risk management philosophy encompasses a set of shared beliefs and attitudeswhich set out how TANESCO considers risk in everything it does from strategy setting to day-to-dayoperational activities. It influences culture and operating style including how risks are identified, thekind of risks accepted and how they are managed. The Company's risk management philosophy iscontinually captured in policy statements, oral and written communications to stakeholders, staff andin every decision making.

The Board of Directors carries risk and internal control assessment through Audit and RiskCommittee (ARC).

20



15. SOLVENCY

The Board of Directors confirms that applicable financial reporting standard have been followed andthat the financial statements have been prepared on a going-concern basis. The Board hasreasonable expectation that TANESCO has adequate resources to continue in operational existencefor the foreseeable future.

Additional information pertinent to the solvency of the Company is given below:

The Company requires financial support from the Government of United Republic of Tanzania to payfor capacity and energy charges in order to continue operating in the foreseeable future.

The Government has been consistently showing commitment in assisting the Company. Thedirectors are of the opinion that the Government acknowledges the Company's financial difficultiesand it will not recall its loan that the Company has defaulted paying. The Government has continuedfunding the Company despite the default. Additionally, the Government of Tanzania has confirmedits commitment of providing financial support to TANESCO in order to continue operating on a goingconcern basis.

The Government has been partly financing rural electrification projects through its agency, the RuralEnergy Agency (REA), through capital grants and is expected to continue to provide funds for theseprojects for the foreseeable future. In addition, the Government has continued to solicit grants fromexternal donors to finance electrification projects and rehabilitation of distribution and transmissionnetworks.

16. EMPLOYEES' WELFARE

Management and Employee's Relationship

(i) Industrial Relationship

There was a continued positive relation between employees/Labour Union and Management duringthe year ended 301h June 2016. No industrial unrest was reported apart from disciplinary cases toemployees engaged in unethical behaviour.

Management and the trade union have continued to work together in pertinent issues for thebetterment of the employee's welfare and the Company. The trade union has fully participated underthe electricity sub sector reforms both internally and at National level under the supervision of theMinistry of Energy and Minerals.

(ii) Employment

The Company is an equal opportunity employer. It gives equal access to employment opportunitiesto both males and females and free from discrimination of any kind and without regard to factors likegender, marital status, tribes, religion and disability which does not impair ability to discharge duties.

21



16. EMPLOYEES' WELFARE (CONTINUED)

Management and Employee's Relationship (Continued)

During the year ended 3 0th June 2016, the Company recruited 667 new employees to fill the gaps ofemployees who retired, passed away, terminated and those from approved establishment inrespective years. Below table illustrate employment category and gender.

Period No. of staff Technical Non-Technical GenderEmployed Male Female

Jul 2015 - Jun 2016 667 488 179 569 98Jan 2014 - Jun 2015 739 376 363 595 144

During the same year, a total of 251 employees (18-month period ended 3 0th June 2015: 419)ceased to be employees of the Company due to retirement, death, termination on disciplinarygrounds and resignation.

(iii) Capacity Building.

During the year ended 301h June 2016 the Company utilized Shs 3.9 billion (18-month period ended30t June 2015: Shs 6.5 billion) for staff training at Corporate level in order to improve employee'stechnical skills and productivity. The Company trained 903 employees (18-month period ended 30 h

June 2015: 4,385) in various capacity building programs. The 806 staff were trained locally and 97staff were trained abroad through funding from international agencies i.e. Government of India,World Bank, European Union, JICA, AfDB and others.

TANESCO Training Schools (TTS) conducted 35 training programs (18-month period ended 30 1hJune 2015: 34) with 105 training sessions (18-month period ended 30t" June 2015: 95) to improveemployee's skills and productivity at the company.

A total of 2,245 (18-month period ended 3 0th June 2015: 2,239) employees were trained at TTS outof which 816 employees (18-month period ended 3 0th June 2015: 1,156) were trained under theTANESCO-JICA Project for Capacity Development of Efficient Distribution and Transmissionsystems program (The Project was completed and handed over to TANESCO on 3 1st March 2016after 6.5 years of implementation).

The programs delivered at the Schools were divided into two categories i.e. Technical (1,423employees participated) and Non-technical (822 employees participated). During this year a total ofShs 4.01 billion was utilized as the training costs at TTS (18-month period ended 3 0 th June 2015:Shs 3.5 billion).

Performance Management and Productivity

During the year ended 3 0 th June 2016 the two categories which are; Performance Contract forPrincipal Officers, Managers, Senior Managers and Deputy Managing Directors.

22




Performance Management and Productivity

Also One Minute Goal individual appraisal model for the rest of the employees by evaluating varioustargets set for each employee, One Minute Goal (OMG) is administered on a monthly basis whileperformance contracts are evaluated on a quarterly basis.

During the year ended 3 0 th June 2016 the Company continued with review of performancemanagement process and policy with the aim of strengthening control and improving productivity inline with its strategic aims, The proposed performance management policy and process are set forimplementation in the financial year 2016/2017.

Medical Assistance

During the year ended 3 01h June 2016 the Company continued to implement its Medical Scheme toall employees and dependents as stipulated under the policy. The Scheme is fully covered countrywide up to the district level. AAR Health insurance assist the Company to administer the schemefrom the control perspective (Verification of bills).

The reviewed HIV/AIDs Policy came into effect in year 2014 after approval of the Board.Implementation of HIV and AIDS Programs has continued by providing Nutritional FoodSupplements to infected employees, Conducting Voluntary Counseling and Testing and TrainingPeer Educators in all our regional, district and power generation plant offices. The Company is soonlaunching Smart Card and Biometric System for the Medical Scheme where employees anddependents will be using Smart Cards/Biometric system. The system is intended to improve controlof the Scheme.

Health and Safety

The Company has made efforts to ensure that Occupational Health and Safety is maintained andadhered to by all employees. Accident prevention has been the core and foremost goal where allmajor accidents are investigated and mitigation measures implemented. To raise level of awarenessto employees of different discipline, the Company has conducted various trainings among othersincludes Disaster Preparedness and Response Plan (DPRP) and CPR, MV/LV certification course,re-categorized linesmen safety training and Lock Out and Tag Out (LOTO). Also the Companyconducted public safety awareness campaign to primary and secondary schools students, collegestudents as well as public meetings on safety to villagers especially on newly electrified villages aswell as through media on "TANESCO NA MAENDELEO" TV program.

Employees Benefit Plans

During the year ended 30' June 2016 the Company paid Shs 32,784 million (18-month period ended30th June 2015: Shs 35,074 million) as contributions to publicly administered Pension plans (i.e.Parastatals Pension Fund (PPF), National Social Security Fund (NSSF), Public Service PensionsFund (PSPF), Local Authority Pension Fund (LAPF) and Government Employees Pensions Fund(GEPF).

23




Persons with Disabilities

it is the Company's policy to accept disabled persons for employment for those vacancies that theyare able to fill. In the event of members of staff becoming disabled, every effort is made to ensurethat their employment with the Company continues and appropriate training is arranged. It is theCompany's policy that training, career development and promotion of disabled persons are identicalto that of other employees.

17. GENDER PARITY

During the year ended 30th June 2016, the Company had 6,812 employees (18-month period ended30th June 2015: 6,328 employees), out of which 1,360 were female and 5,452 were male. (18-monthperiod ended 3 0 th June 2015: Female 1,288 and Male 5,040).

18. RELATED PARTY TRANSACTIONS

Details of transactions and balances with related parties are included in note 37 to the financialstatements.

19. POLITICAL AND CHARITABLE DONATIONS

The Company did not make any political donations during the year ended 3 0 th June 2016 (18-monthperiod ended 3 0th June 2015: Nil), the company donated only to charitable organizations. The totaldonations made during the year amounted to Shs 50 million (18-month period ended 3 0 th June 2015:Shs 88 million).

20. ENVIRONMENTAL CONTROL PROGRAMME

The Company continues to manage environmental and social management measures in compliancewith national laws and regulations and national and international environmental standards. For allnew projects the company undertake Environmental and Social Impact Assessment (ESIA) andEnvironmental Auditing (EA) of existing power infrastructures. It also implementing Environmentaland Social Mitigation and monitoring measures for all ongoing to comply with Environment ImpactAssessment (EIA) certificates and lenders requirements. The Company has been in compliance withthe Environmental Management Act Cap 191 and Environmental Impact Assessment and AuditRegulations of 2005. In working with development partners the Company has observed differentpolicies such as World Bank OP 4.01 Environmental Assessment; OP.4.04 - Natural Habitats; OP4.12 - Involuntary Resettlement; Japan Bank for International Cooperation Guidelines forconfirmation of Environmental and Social Considerations and African Bank Safeguard policies. Inorder to improve Company environmental performance, the Company established its unit headed byManager to spearhead the environmental and social management measures.

24



20. ENVIRONMENTAL CONTROL PROGRAMME (CONTINUED)

The company is in the process of establishing its Company Environmental Management System(EMS) that will include environmental policy, objectives, performance targets, and mode ofcommunicating environmental performance and feedback and identification of areas of improvement.In 2016/17, as the first step, it will start to establish Company Environmental Policy.

The Company must receive ESIA clearance certificates from the National EnvironmentalManagement Council (NEMC) before implementing any project. Therefore, during the year 2015/16the Company has undertaken a number of Environmental and Social Impact Assessments andEnvironmental Audit studies for various projects using internal capacity and some in collaborationwith external consultants. While some impact assessments and audits have been completed, theESIA and EA process for some projects will continue to be implemented in year 2016/17.

The projects include;

1. Environmental and Social Impact Assessment (ESIA) and Resettlement Action Plan(RAP) Studies:-

a) ESIA and RAP for Mtwara - Lindi 132kV Transmission Line.

b) ESIA and RAP for Somanga 250MW CCG.

c) ESIA for Mbeya - Tunduma 400kV Transmission Line (under Zambia - Tanzania -

Kenya power interconnector project).

d) ESIA for Lake Ngozi exploration drilling for geothermal power.

e) ESIA and RAP for Geita - Nyakanazi 220kV Transmission Line.

f) RAP study for Rusumo - Nyakanazi 220kV Transmission line.

g) ESIA for Electrification of Rural Areas of Katavi and Rukwa regions

h) North - West Grid Extension phase II and Ill (Nyakanazi (Kabale) - Kigoma - Mpanda

400kV Transmission line) and Mpanda - Sumbawanga 400kV transmission line.

i) RAP for Bulyanhulu - Geita 220kV Transmission line updates.

j) ESIA for Upgrade and extension of telecommunication infrastructure and enhancement of

SCADA System for 10 substations and 5 existing 220kV (Mufindi - Mbeya and Singida -

Mwanza), 132kV (Mwanza - Musoma and Shinyanga - Tabora) and 66kV (Kondoa -

Babati - Mbulu - Karatu) transmission lines under AfDB funding.

k) Strategic Environmental Assessment for the Power System Master Plan update

I) Environmental and Social Impact Assessment (ESIA) for construction of TANESCO office

buildings (Somanga Residential Complex in Kilwa District, Mtwara, and Kibaha training

school).

m) ESIA for Hale Hydropower Plant Rehabilitation project.25



20. ENVIRONMENTAL CONTROL PROGRAMME (CONTINUED)

II. Environmental Audit and Monitoring for the:-

a) Environmental audit for Tunduru thermal power station

b) Environmental and social monitoring for Kihansi catchment management for the hydropower

station

c) Monitoring of implementation of Environmental and Social Management Plan (ESMP) for

Backbone Transmission Investment Project (BTIP) 400kV TL

d) Monitoring of implementation of ESMP for Singida - Namanga (ZTK) 400kV TL

e) Environmental audit for Kigoma Power Station

f) Environmental monitoring for Ubungo I Power station

g) Environmental monitoring and ESMP implementation for Kinyerezi I and II gas power plants

h) Environmental audit for Pangani Hydro system

Also during the year ended 3 0 1h June 2016, the Company has continued to acquire land for theimplementation of the project using existing laws particularly the Land Act No. 4 of 1999, the LandAcquisition Act of 1967, the Land Regulations of 2001 and other amendments that has followedsince 2001. As some projects are being financed by other development partners, the land acquisitionprocess has gone further to fulfil both the requirement of the country and that of developmentpartners' policies such as World Bank, African Development Bank, International Finance Company,and JICA.

The main challenge is shortage of funds that has caused delay in payment of compensation money,increase of land value, multiple projects at the same time and lack of appropriate tools andequipment. Shortage of funds has caused some of the environmental mitigation and managementplans not to be implemented on time causing grievances from project affected people. However,using its little resources, the Company has continued to receive and resolve complaints fromdissatisfied project affected people (PAPs). In spite of all the challenges, EIA certificates have beenobtained, contractors have been handed over site as required and the projects have beenconstructed almost on schedule

26



21. CORPORATE SOCIAL RESPONSIBILITY

The Company has continued with commitment towards sustainable energy supply without undue

compromise to human and environmental development in line with business strategies towards

building strong social value with the community. Reliable service delivery, ethical behavior,responsive and accountable to customers' needs and interests through various business re-

engineering processes focusing on improving corporate image are some of the measures that have

been taken to abide with corporate social responsibility.

The Board of Directors has approved the Corporate Social Responsibility Policy, which guides alldonation and contributions made by TANESCO to the society. The social responsibilities are in

health, social welfare, education and environmental categories and the company sets aside budget

every year to cater for all Corporate Social Responsibility activities.

During the year ended 3 0 1h June 2016, apart from other donations and contributions (see item no.

19, political and charitable donations), the Company continued to provide medical and transportservices to citizens who live nearby the Hydro power stations. Such services are provided at Kidatu,Hale Pangani, Mtera and Kihansi Hydro Power Stations. The Company also provides financialassistance on the occasional basis to the nursery and primary schools at Kidatu and Mtera.

22. AUDITORS

The Controller and Auditor General (CAG) is the statutory auditor of the Company by virtue of Article

143 of the Constitution of the United Republic of Tanzania of 1977 as amplified under section 10 (1)of the Public Audit Act No. 11 of 2008. However, in accordance with Section 33 of the same Act,KPMG was authorized to carry out the Audit of Tanzania Electric Supply Company Limited for the

year ended 3 0th June 2016 on behalf of the Controller and Auditor General to assist the CAG in

forming the audit opinion.

BY ORDER OF THE BOARD

Chairman: Dr. Alexander L. Kyaruzi Date

.. -EK45L 1_____ 611bJ0[7Director: Mr. David E. Alal Date

27


STATEMENT OF DIRECTORS' RESPONSIBILITIESFOR THE YEAR ENDED 3 0 th JUNE 2016

The Directors are responsible for the preparation of the consolidated and separate financialstatements that give a true and fair view of the Tanzania Electric Supply Company Limited and itssubsidiary comprising the consolidated and separate statements of financial position as at 3 0th June2016, and the consolidated and separate statements of profit or loss and other comprehensiveincome, changes in equity and cash flows for the year then ended, and the notes to the financialstatements, which include a summary of significant accounting policies and other explanatory notes,in accordance with International Financial Reporting Standards and in the manner required by theCompanies Act, 2002.

The directors are also responsible for such internal control as the directors determine is necessary toenable the preparation of the consolidated and separate financial statements that are free frommaterial misstatement, whether due to fraud or error, and for maintaining adequate accountingrecords and an effective system of risk management.

The directors have made an assessment of the ability of the Company and its subsidiary to continueas going concern and have no reason to believe that the business will not be a going concern in theyear ahead.

The auditor is responsible for reporting on whether the consolidated and separate financialstatements give a true and fair view in accordance with the applicable financial reporting framework.

Approval of financial statements

The consolidated and separate financial statements of Tanzania Electric Supply Company Limitedapd,its subsidiary, as identified in the first paragraph, were approved by the Board of Directors on

.O 25j. ). and signed by:

Chairman: Dr. Alexander L. Kyaruzi Date

Director: Mr. David E. Alal Date

(28)


DECLARATION OF HEAD OF FINANCE

The National Board of Accountants and Auditors (NBAA) according to the power conferred under theAuditors and Accountants (Registration) Act. No. 33 of 1972, as amended by Act No. 2 of 1995,requires financial statements to be accompanied with a Statement of Declaration issued by the Headof Finance responsible for the preparation of financial statements of the entity concerned.

It is the duty of a professional accountant to assist the Board of Directors to discharge theresponsibility of preparing financial statements of an entity showing true and fair view position of theentity in accordance with international accounting standards and statutory reporting requirements.Full legal responsibility for financial statements rests with the Board of Directors as under DirectorsResponsibility statement on an earlier page.

I Renata C. Ndege being the Head of Finance of Tanzania Electric Supply Company Limited herebyacknowledge my responsibility of ensuring that financial statements for the year ended 3 0 1h June2016 have been prepared in compliance with applicable accounting standards and statutoryrequirements.

I thus confirm that the financial statements comply with applicable accounting standards andstatutory requirements as on that date and that they have been prepared based on properlymaintained financial records.

Signed by: . ..........

Position: .... . .

NBAA Membership No. :..

Date: ...... G ....... . ... 2017

(29)


REPORT OF THE CONTROLLER AND AUDITOR GENERAL

Chairman,Board of Directors,Tanzania Electric Supply Company LimitedP.O. Box 9024DAR ES SALAAM

Introduction

I have audited the accompanying consolidated and separate financial statements of TanzaniaElectric Supply Company Limited, which comprise the consolidated and separate statements offinancial position as at 3 01h June 2016, and the consolidated and separate statements of profitor loss and other comprehensive income, changes in equity and cash flows for the year thenended, and the notes to the financial statements, which include a summary of significantaccounting policies and other explanatory notes as set out on page 33 to 116.

Directors' responsibility for the financial statements

The Company's directors are responsible for the preparation of the consolidated and separatefinancial statements that give a true and fair view in accordance with International FinancialReporting Standards, and in the manner required by the Companies Act, 2002 and for suchinternal control as the directors determine is necessary to enable the preparation ofconsolidated and separate financial statements that are free from material misstatement,whether due to fraud or error.

Auditor's responsibility

My responsibility as auditor is to express an independent opinion on these consolidated andseparate financial statements based on my audit. I conducted the audit in accordance with theInternational Standards on Auditing. Those standards require that I comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe consolidated and separate financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the consolidated and separate financial statements. The procedures selecteddepend on my judgment, including the assessment of the risks of material misstatement of theconsolidated and separate financial statements, whether due to fraud or error. In making thoserisk assessments, I consider the internal control relevant to the entity's preparation of theconsolidated and separate financial statements that give a true and fair view in order to designaudit procedures that are appropriate in the circumstances but not for the purpose ofexpressing an opinion on the effectiveness of the entity's internal control. An audit alsoincludes evaluating the appropriateness of accounting policies used and the reasonableness ofaccounting estimates made by Directors as well as evaluating the overall presentation of theconsolidated and separate financial statements.

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REPORT OF THE CONTROLLER AND AUDITOR GENERAL (CONTINUED)

According to Section 9 of the Public Audit Act, 2008, my specific responsibilities are toexamine, enquire into, audit and report on the consolidated and separate financial statementsof Tanzania Electric Supply Company Limited for the year ended 30th June 2016.

In addition, Section 10 (2) of the Public Audit Act, 2008 requires me to satisfy myself that theconsolidated and separate financial statements have been kept in accordance with generallyaccepted accounting principles; reasonable precautions have been taken to safeguard thecollection of revenue, the receipt, custody, disposal, issue and proper use of public property,and that the law, directions and instructions applicable thereto have been duly observed,expenditures of public monies have been properly authorised; and to satisfy myself whether thefunds generated by Tanzania Electric Supply Company Limited were used exclusively andjudiciously to meet eligible expenditure with due regard to economy and efficiency.

Further, Section 48 (3) of the Public Procurement Act, 2011 and 269 (1) of the PublicProcurement (Good, Works, Non-consultancy Services and Disposal of Public Assets byTender) Regulation of 2013 requires me to state in my annual audit report whether or not theauditee has generally complied with the provisions of the Law and its Regulations.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basisfor my audit opinion.

Opinion

In my opinion, .the consolidated and separate financial statements give a true and fair view ofthe consolidated and separate financial position of the Group and Company as at 30" June2016, and of its consolidated and separate financial performance and consolidated andseparate cash flows for the year then ended in accordance with International FinancialReporting Standards, and in the manner required by the Companies Act, 2002.

Emphasis of Matter

I draw attention to note 35 to the consolidated and separate financial statements, whichdescribes that the Company is a defendant in an arbitration case filed by Standard CharteredBank Hong Kong (SCBHK) at the International Centre for Settlement of Investment Disputes(ICSID). Following the final ruling (final award) issued on 12th September 2016, the Company isrequired to pay SCBHK USD 148.4 million (approximately Shs 324.96 billion) together withmonthly interest based on UBOR plus 4% starting from 3 0 th September 2015. The Companyhas applied for annulment and has been granted stay of enforcement of the award by the HighCourt of Tanzania. The Directors are of the opinion that it is not probable that any liability willarise as the possibility of losing the application for annulment is unanticipated and that nomaterial losses will arise in respect of the legal claim at the date of these financial statementsand hence the Company has not made any provision against the claim in the consolidated andthe separate financial statements.

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REPORT OF THE CONTROLLER AND AUDITOR GENERAL (CONTINUED)

Report on Other Legal and Regulatory Requirements

1. Compliance with the Companies Act, 2002

As required by the Companies Act, 2002 we report that:

* in my opinion, proper accounting records have been kept by the Company;* the individual accounts are in agreement with the accounting records of the Company;

and* 1 obtained all the information and explanations which, to the best of my knowledge and

belief, are necessary for the purposes of my audit.

2. Compliance with Public Procurement Act, 2011

In view of my responsibility on the procurement legislation, and taking into considerationthe procurement transactions and processes I have reviewed as part of this audit, I statethat Tanzania Electric Supply Company Limited has generally complied with therequirements of the Public Procurement Act, 2011 and its Regulations of 2013.

CO Assa A ITOR ENERAL

Office of Controller and Auditor General,National Audit Office,DAR ES SALAAM,

Date:

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CONSOLIDATED AND SEPARATE STATEMENTS OF PROFIT OR LOSS AND OTHERCOMPREHENSIVE INCOME

FOR THE YEAR ENDED 3 0TH JUNE 2016

Consolidated Separate12 Months 18 Months 12 Months 18 Months to

to 3 0 1h June to 3 0th June to 3 0 th June 3 0 * JuneNote 2016 2015 2016 2015

Shs'm Shs'm Shs'm Shs'm

Revenue 9 1,379,740 1,957,756 1,379,740 1,957,756

Cost of sales 10 (1,469,103) (1,746,674) (1,469,103) (1,746,674)

Gross (loss)Iprofit (89,363) 211,082 (89,363) 211,082

Other operating income 11 163,331 349,728 163,230 349,767

Operating expenses 12 (274,133) (299,697) (271667) (298,338)

Operating (loss)/profit (200,165) 261,113 (197,800) 262,511

Interest income on bank deposits 1,139 1,914 1,139 1,914

Finance cost 13 (158,669) (289,913) (158,669) (289,913)

Net finance cost (157,530) (287,999) (157,530) (287,999)

Share of loss in associate 21 (792) (208)

Loss before tax (358,487) (27,094) (355,330) (25,488)

Income tax creditl(charge) 14 8,932 (98,972) 8,932 (98,972)

Loss for the year/period (349,555) (126,066) (346,398) (124,460)

Other comprehensive incomeItems that will not be reclassified to profitor loss:

Revaluation of property, plant and equipment 2,280,608 - 2,280,608 -Related tax (684,183) - 684,183) -

Other comprehensive income, net of tax 1,596,425 - 1-425

Total comprehensive incomel(loss) for theyearlperiod 1,246,870 126,066 1,250,027 124,460

The notes and related statements on pages 41 to 116 are an integral part of these financial statements.

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CONSOLIDATED AND SEPARATE STATEMENTS OF FINANCIAL POSITIONAS AT 3 0 TH JUNE 2016

Consolidated Separate2016 2015 2016 2015

Note Shs 'm Shs 'm Shs 'm Shs 'mNon-current assets

Property, plant and equipment 16 6,136,938 2,741,150 6,135,889 2,740,869Capital work in progress 17 1,367,031 1,737,992 1,367,031 1,737,992Intangible asset 18 310 928 310 928Investment property 19 272 453 272 453Investment in subsidiary 20 - - 1,000 1,000Investment in associate 21 352 1,145 1,353 1,353Other investments 22 1,056 1,056 1,056 1,056Capacity charges prepayment 23 36,202 40,681 36,202 40,681Restricted deposits/funds 27(b) 60,382 54,551 60,382 54,551

7,602,543 4,577,956 7,603,495 4,578,883Current assetsInventories 25 12,942 19,339 12,942 19,339Asset held for sale - 561 - 561Trade and other receivables 26 218,584 334,692 221,380 335,260Prepayments 54,410 54,431 54,410 54,431Withholding tax recoverable 2,010 3,536 2,010 3,536Restricted deposits/funds 27(b) 12,340 10,724 12,340 10,724Bank balances and cash 27(a) 129,509 163,686 129,170 163,684

429,795 586,969 432,252 587,535

Total assets 8,032,338 5,164,925 8,35747 5,166,418

Capital and reservesShare capital 28 (a) 986,717 986,717 986,717 986,717Advance towards share capital 28 (b) 606,751 494,316 606,751 494,316Accumulated losses (1,926,001) (1,576,446) (1,921,238) (1,574,840)Reserves 2,301,040 704,615 2,301,040 704,615Total equity 1,968,507 609,202 1,973,270 610,808

Non-current liabilitiesDeferred tax liability 24 1,080,400 374,993 1,080,400 374,993Grants 29 2,215,613 1,788,548 2,214,459 1,788,435Borrowings 30 892,526 843,755 892,526 843,755Consumer deposits and deferredincome 33 21,272 21,165 21,272 21,165Other employment benefits 31 24,252 24,119 24,252 24,119

4,234,063 3,052,580 4,232,909 3,052,467

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CONSOLIDATED AND SEPARATE STATEMENTS OF FINANCIAL POSITIONAS AT 30m JUNE 2016 (CONTINUED)


Note Shs 'm Shs 'm Shs 'm Shs 'm

Current liabilitiesTrade and other payables 32 1,187,238 979,918 1,187,038 979,918Borrowings 30 637,268 519,126 637,268 519,126Income tax payable 5,262 4,099 5,262 4,099

1,829,768 1,503,143 1,829,568 1,503,143

Total liabilities 6,063831 4,555,723 6,062,477 4,5,610

Total equity and liabilities 8,032,338 5, 925 8,035,747 5,166,418

The financial statements on pages 33 to 116 were approved by the Board of Directors on

C 1 .g 4..and signed on its behalf by: -

A<C

Chairman: Dr.Alexander L. Kyaruzi Director: Mr. David E. Alal

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CONSOLIDATED AND SEPARATE STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 30 .JUNE 2016

AdvanceShare towards share Revaluation Fair value Accumulated

CONSOLIDATED capital capital reserve reserve losses TotalShs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm

Year ended 301h June 2016Balance at 1 July 2015 986,717 494,316 703,560 1,055 (1,576,446) 609,202

Total Comprehensive income:Loss for the year - - - - (349,555) (349,555)Other comprehensive income:Fair valuation of low interest loans on initialrecognition - 109,854 - - - 109,854Deferred tax liability on fair valuation of lowinterest loans on initial recognition - (32,955) - - - (32,955)Fixed assets revaluation surplus - - 2,280,608 - - 2,280,608Deferred tax liability on fixed assets revaluationIsurplus -- (684,183)- (684,183)

Transactions with owners:Advance towards Share capital - 35,536 - - - 35,536

Balance as at 301h June 2016 986,717 6061 299985 1,055 (1,926,001) 1


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CONSOLIDATED AND SEPARATE STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 30 JUNE 2016 (CONTINUED)


SEPARATE capital capital reserve reserve losses TotalShs 'm Shs m Shs 'm Shs 'm Shs 'm Shs 'm

Year ended 30t June 2016Balance at 15t July 2015 986,717 494,316 703,560 1,055 (1,574,840) 610,808

Total Comprehensive income:Loss for the year - - - - (346,398) (346,398)Other comprehensive income:Fair valuation of low interest loans on initialrecognition - 109,854 - - - 109,854Deferred tax liability on fair valuation of lowinterest loans on initial recognition - (32,955) - - - (32,955)ixed assets revaluation surplus - 2,280,608 - - 2,280,608

Deferred tax liability on fixed assetsrevauation surplus - L 684,183)-(6413


At end of the year 986jfl7 606,751 ,299,985 _1921,238 1,973,270

The notes and related statements on pages 41 to 116 are an integral part of these financial statements

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CONSOLIDATED AND SEPARATE STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 30" JUNE 2016 (CONTINUED)


CONSOLIDATED capital capital reserve reserve loss TotalShs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm

Period ended 30 June 2015Balance at 1' January 2014 986,717 359,909 853,270 1,055 (1,450,380) 750,571

Total Comprehensive income:Loss for the period - - - - (128,066) (126,066)

Other comprehensive income:Fair valuation of low interest loans on initialrecognition - 238,812 - - - 238,812Deferred tax liability on valuation of lowinterest loans on initial recognition - (130,410) - - - (130,410)Deferred tax liability on fixed assetsrevaluation surplus (149,710) - (149,710)


At end of period 98494316 703,60 (1,576,446) 609,202


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CONSOLIDATED AND SEPARATE STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 30H JUNE 2016 (CONTINUED)

AdvanceShare towards Revaluation Fairvalue Accumulated

SEPARATE capital share capital reserve reserve loss TotalShs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm

Period ended 30th June 2015balance at 1st January 2014 986,717 359,909 853,270 1,055 (1,450,380) 750,571

Total Comprehensive income:Loss for the period - - - - (124,460) (124,460)Other comprehensive income:Fair valuation of low interest loans on initialrecognition 238,812 238,812Deferred tax liability on valuation of low interestloans on initial recognition (130,410) (130,410)Deferred tax liability on fixed assets revaluationsurplus (149,710 - - 149710


At end of period 986,71 494,316 703,560 1,055 (1,574,840) 610,8


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CONSOLIDATED AND SEPARATE STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED 3 0 TH JUNE 2016

CONSOLIDATED SEPARATENote 12 Months 18 Months 12 Months 18 Months

to 2016 to 2015 to 2016 to 2015Shs 'm Shs 'm Shs 'm Shs 'm

CASH FLOWS FROM OPERATING ACTIVITIESCash generated from operating activities 34 297,988 342,357 297,875 343,165Interest paid 30 (45,805) (70,293) (45,805) (70,293)Tax paid (1,638) (523) (I,63 (523

Net cash from operating activities 250,545 271,541 250,432 272,349

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to capital work in progress (946,078) (1,317,004) (946,078) (1,317,004)Transfer to subsidiary property, plant & equipment - - - 190Acquisition of property, plant & equipment (906) - --

Acquisition of subsidiary -- - (1,000)Acquisition of other investment - (1,353) - (1,353)

Net cash used in investing activities (946,984) (1,318,35 7) (946,078) (1,319,167)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from borrowings 30 244,052 326,339 244,052 326,339Loan repayments 30 (87,265) (84,304) (87,265) (84,304)Change in restricted deposits/funds 27 (7,447) (9,390) (7,447) (9,390)Proceeds from grants .29 477,386 824,300 476,256 824,300Proceeds towards share capital - 35,536 26,005 35,536 26,005

Net cash generated from financing activities 662,262 1,082,950 661,132 1,082,950

Net (decrease)/increase in cash and cashequivalents (34,177) 36,134 (34,514) 36,132

Movement in cash and cash equivalentsCash and cash equivalents at beginning ofyear/period 163,686 127,552 163,684 127,552(Decrease)/Increase during the year/period (34,177) 36,134 (34,514) 36,132

Cash and cash equivalents at end ofyearlperiod 27 129,509 163,686 129,170 163,684


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CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 3 0 TH JUNE 2016

NOTES

Tanzania Electric Supply Company Limited (the "Company") is a company domiciled inTanzania. The consolidated financial statements of the Company as at and for the yearended 3 01h June 2016 comprise the Company and its subsidiary Tanzania GeothermalDevelopment Company Limited (together referred to as the Group). The Group is primarilyinvolved in generation, transmission and distribution of electricity.

The registered office is:

Umeme ParkP.O. Box 9024UbungoDar es Salaam

BASIS OF ACCOUNTING

These consolidated and separate financial statements have been prepared in accordancewith the International Financial Reporting Standards (IFRSs) and in the manner required bythe Companies Act, 2002. The financial statements were authorised for issue by theCompany's Board of Directors on _

Details of the accounting policies are included in note 7.

Change of reporting period

In 2015, the Company changed the reporting period to 3 0 h June from 31st December in orderto align its financial year to the Government's fiscal year as per Treasury circular number 11of financial year 2014/2015. As a result, the comparative period is 18 months to 3 0 th June2015 while the current period which ended on 30t June 2016 covers 12 months. Therefore,the amounts presented in the financial statements are not entirely comparable.

Consolidation

The Company owns 100% of the ordinary share capital of Tanzania GeothermalDevelopment Company Limited (TGDC). This subsidiary was incorporated on 191t, December2013.

The consolidated financial statements include the financial statements of Tanzania ElectricSupply Company Limited and its subsidiary, all made up to 3 0th June 2016. The consolidatedfinancial statements are of the Group and Company (Separate).

2 FUNCTIONAL AND PRESENTATION CURRENCY

These consolidated and separate financial statements are presented in Tanzanian Shillings(Shs), which is the Group and Company's functional currency. All financial informationpresented in Tanzanian Shillings has been rounded off to the nearest million (Shs' m) exceptwhen otherwise indicated.

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CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 3 0TH JUNE 2016

NOTES (CONTINUED)

3 USE OF ESTIMATES AND JUDGMENTS

The preparation of consolidated and separate financial statements in conformity with IFRSsrequires management to make judgments, estimates and assumptions that affect theapplication of accounting policies and reported amounts of assets, liabilities, income andexpenses. Actual results may differ from these estimates.

i) Judgements

The areas that management uses judgements which have most significant effects on theconsolidated and separate financial statements include:

a. Consolidation: whether the Company has de facto control over a Subsidiary or aninvestee, and

b. Lease classification.

ii) Assumptions and estimation uncertainties

Below are the areas of estimation uncertainties that have a significant risk of resulting in amaterial adjustment in the subsequent financial years,

a. Income tax

The Company is subject to income taxes to the government. Significant judgment isrequired in determining the provision for income taxes. There are many transactionsand calculations for which the ultimate tax determination is uncertain during theordinary course of business.

The Company recognizes liabilities for anticipated tax audit issues based onestimates of whether additional taxes will be due. Where the final tax outcome ofthese matters is different from the amounts that were initially recorded, suchdifferences will impact the income tax and deferred tax provisions in the period inwhich such determination is made.

b. Property, Plant & Equipment

Critical estimates are made by the directors in determining depreciation rates forproperty, plant and equipment. The rates used are set out in note 7(d).

c. Trade and other receivables provisioning

Critical estimate is made in determining fair value receivable from customers byestimating provisional bad debt basing on current policy.

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CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30H JUNE 2016

NOTES (CONTINUED)

4 USE OF JUDGEMENT AND ESTIMATES (CONTINUED)

ii. Assumptions and estimation uncertainties (Continued)

d. Impairment provisions

Critical estimates are made by the directors in determining the carrying amount ofimpaired property, plant and equipment, see note 7(j).

e. Revenue estimation

Judgement matter is made by the directors in recognising revenue at the year end fromthe prepaid power purchases made in June. For the individual prepaid sales, theprepayment for the last five days of the month is deferred to the following year as below:

Sales made on 30 th June: 100% deferred revenue;

Sales made on 2 91h June: 80% deferred revenue;

Sales made on 281h June: 60% deferred revenue;

Sales made on 27 1h June: 40% deferred revenue; and

Sales made on 261h June: 20% deferred revenue;

iii. Measurement of fair values

A number of Group's accounting policies and disclosure require the measurement of fairvalues. Management has overall responsibility for overseeing all significant fair valuemeasurements.

When measuring the fair value of an asset or a liability, the Group uses observable data asfar as possible. Fair values are categorized into different levels in a fair value hierarchybased on the inputs used in the valuation techniques.

If the inputs used to measure the fair value of an asset or a liability might be categorized indifferent levels of the fair value hierarchy then the fair value measurement is categorized inits entirety in the same level of the fair value hierarchy as the lowest input that is significant tothe entire measurement.

5 NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE ANDNOT EARLY ADOPTED BY THE GROUP

A number of new standards, amendments to standards and interpretations are effective forannual periods beginning on or after 1V July 2016, and have not been applied in preparingthese consolidated and separate financial statements. Those which may be relevant to theGroup and Company are set out below. The Group and Company do not plan to adopt thesestandards early. These will be adopted in the period that they become mandatory unlessotherwise indicated.

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NOTES (CONTINUED)

5 NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE ANDNOT EARLY ADOPTED BY THE GROUP(CONTINUED)

Accounting for Acquisitions of Interests in Joint Operations (Amendments to I FRS 11)

The amendments require business combination accounting to be applied to acquisitions ofinterests in a joint operation that constitutes a business.

Business combination accounting also applies to the acquisition of additional interests in ajoint operation while the joint operator retains joint control. The additional interest acquiredwill be measured at fair value. The previously held interest in the joint operation will not beremeasured.

The amendments apply prospectively for annual periods beginning on or after 1t January2016 and early adoption is permitted.

The amendments will not have a material impact on the group's financial statements.

Equity Method in Separate Financial Statements (Amendments to IAS 27)

The amendments allow an entity to apply the equity method in its separate financialstatements to account for its investments in subsidiaries, associates and joint ventures.

The amendments apply retrospectively for annual periods beginning on or after 1 st January2016 and early adoption is permitted.

The Group is assessing the potential impact on its consolidated and separate financialstatements resulting from the amendments. So far, the group does not expect any significantimpact.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture(Amendments to IFRS 10 and IAS 28)

The amendments require the full gain to be recognised when assets transferred between aninvestor and its associate or joint venture meet the definition of a 'business' under IFRS 3Business Combinations. Where the assets transferred do not meet the definition of abusiness, a partial gain to the extent of unrelated investors' interests in the associate or jointventure is recognised. The definition of a business is key to determining the extent of the gainto be recognised.

The amendments apply prospectively for annual periods beginning on or after 1 January2016 and early adoption is permitted.

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NOTES (CONTINUED)

5 NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE ANDNOT EARLY ADOPTED BY THE GROUP (CONTINUED)

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture(Amendments to IFRS 10 and IAS 28) (Continued)

The Group is assessing the potential impact on its consolidated and separate financialstatements resulting from the amendments. So far, the group does not expect any significantimpact.

Disclosure Initiative (Amendments to lAS 1)

The amendments provide additional guidance on the application of materiality andaggregation when preparing financial statements. The amendments also clarify presentationprinciples applicable to the order of notes, other comprehensive income (OCI) of equityaccounted investees and subtotals presented in the statement of financial position andstatement of profit or loss and other comprehensive income.

The amendments apply for annual periods beginning on or after 1s January 2016 and earlyapplication is permitted.

The adoption of these amendments are not expected to bring any major changes in thedisclosure of the Group's financial statement.

Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10,IFRS 12 and IAS 28)

The amendment to IFRS 10 Consolidated Financial Statements clarifies which subsidiaries ofan investment entity are consolidated instead of being measured at fair value through profitand loss. The amendment also modifies the condition in the general consolidation exemptionthat requires an entity's parent or ultimate parent to prepare consolidated financialstatements. The amendment clarifies that this condition is also met where the ultimate parentor any intermediary parent of a parent entity measures subsidiaries at fair value through profitor loss in accordance with IFRS 10 and not only where the ultimate parent or intermediateparent consolidates its subsidiaries.

The amendment to IFRS 12 Disclosure of Interests in Other Entities requires an entity thatprepares financial statements in which all its subsidiaries are measured at fair value throughprofit or loss in accordance with IFRS 10 to make disclosures required by IFRS 12 relating toinvestment entities.

The amendment to AS 28 Investments in Associates and Joint Ventures modifies theconditions where an entity need not apply the equity method to its investments in associatesor joint ventures to align these to the amended IFRS 10 conditions for not presentingconsolidated financial statements. The amendments introduce relief when applying the equity

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CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30TH JUNE 2016

NOTES (CONTINUED)

5 NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE ANDNOT EARLY ADOPTED BY THE GROUP (CONTINUED)

Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10,IFRS 12 and IAS 28) (Continued)

method which permits a non-investment entity investor in an associate or joint venture that isan investment entity to retain the fair value through profit or loss measurement applied by theassociate or joint venture to its subsidiaries.

The amendments apply retrospectively for annual periods beginning on or after 1t January2016, with early application permitted.

The Group is assessing the potential impact on its financial statements resulting from theapplication of the amendments.

IFRS 15 Revenue from contracts with customers

This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 CustomerLoyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC18Transfer of Assets from Customers and SIC-31 Revenue - Barter of TransactionsInvolving Advertising Services.

The standard contains a single model that applies to contracts with customers and twoapproaches to recognising revenue: at a point in time or over time. The model features acontract-based five-step analysis of transactions to determine whether, how much and whenrevenue is recognised.

This new standard will most likely have a significant impact on the Group, which will include apossible change in the timing of when revenue is recognised and the amount of revenuerecognised. The Group is currently in the process of performing a more detailed assessmentof the impact of this standard on the Group and will provide more information in the yearending 3 0th June 2017 financial statements.

The standard is effective for annual periods beginning on or after 1 January 2018, with earlyadoption permitted under IFRS.

IFRS 9 Financial Instruments

On 2 4th July 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, whichreplaces earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39Financial Instruments: Recognition and Measurement.

This standard will have a significant impact on the Group, which will include changes in themeasurement bases of the Group's financial assets to amortised cost, fair value throughother comprehensive income or fair value through profit or loss. Even though thesemeasurement categories are similar to IAS 39, the criteria for classification into these

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NOTES (CONTINUED)

5 NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE ANDNOT EARLY ADOPTED BY THE COMPANY (CONTINUED)

IFRS 9 Financial Instruments (Continued)

categories are significantly different. In addition, the IFRS 9 impairment model has beenchanged from an "incurred loss" model from IAS 39 to an "expected credit loss" model, whichis expected to increase the provision for bad debts recognised in the Group.

The standard is effective for annual periods beginning on or after 1st January 2018 withretrospective application, early adoption is permitted.

IFRS 16 Leases

IFRS 16 was published in January 2016. It sets out the principles for the recognition,measurement, presentation and disclosure of leases for both parties to a contract, i.e. thecustomer ('lessee') and the supplier ('lessor'). IFRS 16 replaces the previous leasesStandard, IAS 17 Leases, and related Interpretations. IFRS 16 has one model for lesseeswhich will result in almost all leases being included on the Statement of Financial position. Nosignificant changes have been included for lessors.

The standard is effective for annual periods beginning on or after 1st January 2019, with earlyadoption permitted only if the entity also adopts IFRS 15. The transitional requirements aredifferent for lessees and lessors. The Group is assessing the potential impact on the financialstatements resulting from the application of IFRS 16.

6 GOING CONCERN

The Group incurred a net loss of Shs 349,555 million (Company: Shs 346,398 million) for theyear ended 30th June 2016 (18-month period ended 301h June 2015: Group incurred a netloss of Shs 126,066 million and Company: Shs 124,460 million). As at the reporting date, theGroup's current liabilities exceeded its current assets by Shs 1,483 billion (Company: Shs1,480 billion) (2015: Group's current liabilities exceeded current assets by Shs 988 billion andCompany: Shs 987 billion).

In addition, TANESCO holds 100% shares in its subsidiary company, TGDC, whose missionis to develop power using geothermal resources. The subsidiary expects to be in itsdevelopment stage in the near future and its operational budget is partly financed by theCompany.

The Group has defaulted in repaying some of the loans as stated in note 30 to the financialstatements.Furthermore, the Group has been reliant on Government support to finance its operationsand capital projects. Unless the Government intervenes, the Group will not be able to realiseits assets and pay its liabilities in the ordinary course of the business.

The consolidated and separate financial statements have been prepared on the goingconcern basis based on assumption that the Government will continue to provide financialsupport as and when necessary.

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NOTES (CONTINUED)

6 GOING CONCERN (CONTINUED)

The following indicators support going concern assumption.

a) The completion of construction of gas pipe line from Mtwara to Dar es Salaam by theGovernment in September 2015 which was coupled with the commissioning of Kinyerezi I150 MW gas-fired power plant. This resulted into the Company starting to enjoy costsavings from using this source to generate power in comparison to the cost of powerbeing purchased from Independent Power Producers.

b) The Government's commitment to continue to provide financial support to the Groupwhen the need arises. The Government has consistently shown its commitment toprovide financial support to the Group through revenue grants to finance part of operatingcosts, granting of government loans and issuing of guarantees on loans solicited by theGroup. The directors are of the opinion that the Govemment acknowledges the Group'sfinancial difficulties and it will not recall its loans that the Group has defaulted paying. TheGovernment has continued funding the Company despite the default. Additionally, theGovernment of Tanzania has confirmed its commitment of providing financial support toTANESCO and the subsidiary in order to continue operating on a going concern basis.

c) The Government has been co-financing rural electrification projects through its agency,the Rural Energy Agency (REA). The Government is expected to continue to providefunds for these projects for the foreseeable future.

d) In addition, the Government has continued to solicit grants from external donors tofinance electrification projects and rehabilitation of distribution and transmission networks.From its reports, REA is planning to electrify 3,559 villages through funding fromGovernment for the year 2017 - 2019. Consequently, the Group expects to continue toincrease its customer base through new connections.

e) The ongoing power generation investment program of 240MW, 300MW at Kinyerezi andthe 185 MW extension of Kinyerezi 1 will enable the Company to be self-sufficient inpower generation and thus generate positive results because it will not be sourcing powerfrom the expensive independent power producers. In addition, the Group has variousprojects which are in the implementation stage which are aimed at increasing the supplyof electricity and consequently, the customer base.

f) Subsequent to the year end, the Group has collected Shs 137 billion from variousgovernment department and agencies relating to the use of electricity. This shows thegovernment's commitment to reduce its outstanding balances with the Company.

In view of the above, the directors of the Company believe that the Group will continue tooperate on a going concern basis. Accordingly, these financial statements have beenprepared on the basis of accounting policies applicable to a going concern.

(48)



NOTES (CONTINUED)

7 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these consolidated andseparate financial statements are set out below. These policies have been appliedconsistently to all periods presented, unless otherwise stated.

Certain comparative amounts have been reclassified to conform to the current year'spresentation.

a) Basis of consolidation

i. Subsidiary

Subsidiary is the entity controlled by the Company. The Company controls an entity when it isexposed to, or has rights to, variable returns from its involvement with the entity and has theability to affect those returns through its power over the entity. The financial statements of thesubsidiary are included in the consolidated financial statements from the date on whichcontrol commences until the date on which control ceases. In the separate financialstatements, the investment in the subsidiary is carried at cost.

ii. Non-controlling interest (NCI)

NCI are measured at their proportionate share of the acquiree's identifiable net assets at thedate of acquisition. Changes in the Company's interest in a subsidiary that do not result in aloss of control are accounted for as equity transactions.

iii. Loss of control

When the Company loses control over a subsidiary, it derecognises the assets and liabilitiesof the subsidiary, and any related NCI and other components of equity. Any resulting gain orloss is recognised in profit or loss. Any interest retained in the former subsidiary is measuredat fair value when control is lost.

iv. Transaction eliminated on consolidation

Intra-Company balances and transactions, and any unrealised income and expenses arisingfrom intra-company transactions, are eliminated. Unrealised gains arising from transactionswith equity accounted investees are eliminated against the investment to the extent of theCompany's interest in the investee. Unrealised losses are eliminated in the same way asunrealised gains, but only to the extent that there is no evidence of impairment.

b) Interest in equity accounted investees

The Company's interests in equity-accounted investees comprise interests in associates anda joint venture.

An associate is an entity in which the Company has significant influence, but not control orjoint control, over the financial and operating policies.

(49)



NOTES (CONTINUED)

7 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

b) Interest in equity accounted investees (Continued)

In the consolidated financial statements, interest in associate is accounted for using theequity method. In the separate financial statements, the investees are carried at cost, whichincludes the initial transaction costs directly attributable to the acquisition of the investments.Subsequent to initial recognition, the consolidated financial statements include theCompany's share of the profit or loss and OCI of equity accounted investees, until the dateon which significant influence or joint control ceases.

c) Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale ofservices in the ordinary course of the Group's activities. Revenue is shown, net of value addedtax, estimated returns, rebates and discounts.

Revenue is recognized in the period when electricity is consumed by customers, it can bereliably measured and when it is probable that future economic benefit will flow to the Group.

Revenue on prepaid accounts is recognized when units of electricity are purchased. Anadjustment is made at the year-end to reverse the estimated portion of unused units.

d) Property, plant and equipment

All categories of property, plant and equipment except motor vehicles, strategic spares andoffice equipment are measured at fair value, based on periodic valuations by externalindependent valuers, less subsequent depreciation. Any accumulated depreciation at the dateof revaluation is eliminated against the gross asset. All other property, plant and equipment arestated at historical cost less depreciation and accumulated impaired losses. Historical costincludes expenditure that is directly attributable to the acquisition of the items. Leasehold landis not depreciated.

Subsequent costs are included in the asset's carrying amount or recognized as a separateasset, as appropriate, only when it is probable that future economic benefits associated withthe item will flow to the Group and the cost of the item can be measured reliably. The carryingamount of the replaced part is derecognized. All other repairs and maintenance are charged toprofit or loss when incurred.

Increases in the carrying amount arising on revaluation of property, plant and equipment arecredited to revaluation reserves in shareholders equity net of deferred tax. Decreases thatoffset previous increases of the same asset is charged against revaluation reserve directly inequity; all other decreases are charged to profit or loss.

(50)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 3 0" JUNE 2016

NOTES (CONTINUED)


d) Property, plant and equipment (Continued)

Depreciation on other assets is calculated using the straight-line method to allocate their costor revalued amounts to their residual values over their estimated useful lives, as follows:

Hydro-generation equipment 12 - 60 yearsThermal-generation equipment 10 - 50 yearsTransmission systems 4 - 60 yearsDistribution systems 8 - 60 yearsBuildings 5 - 54 yearsMotor vehicles 4 - 6 yearsOffice equipment 8 yearsStrategic spares 30 years

The assets' residual values and useful lives are reviewed at each reporting date, and valuationperiod respectively and appropriate adjustment are put into effect.

Gains or losses on disposals (calculated as the difference between the net proceeds fromdisposal and the carrying amount of the items) are recognised within 'other income' in profit orloss.

When revalued assets are sold, the amounts included in revaluation reserve are transferred toaccumulated losses.

e) Investment Property

Investment property is property held either to earn rental income or for capital appreciation orfor both, but not for sale in the ordinary course of business, use in the production or supply ofgoods or services or for administrative purposes, Investment property is initially measured atcost. Subsequently, investment property is measured at historical cost less accumulateddepreciation and accumulated impairment losses. Investment properties are depreciated on astraight line basis with a useful life of 20 years.

Cost includes expenditure that is directly attributable to the acquisition of the investmentproperty. The cost of self-constructed investment property includes the cost of materials anddirect labour, any other costs directly attributable to bringing the investment property to aworking condition for their intended use and capitalized borrowing costs.

Additions to the investment property are those resulting from subsequent expenditure that meetthe definition of an asset, and those resulting from acquisition.

Any gain or loss on disposal of an investment property (calculated as the difference betweenthe net proceeds from disposal and the carrying amount of the item) is recognized in profit orloss. When an investment property that was previously classified as property, plant andequipment is sold, any related amount included in the revaluation reserve is transferred toretained earnings.

(51)



NOTES (CONTINUED)


e) Investment Property (Continued)

When the use of a property changes to owner-occupied it is reclassified as property, plant andequipment.

f) Capital Work in Progress

Capital work in progress represents the costs incurred for capital projects that are underconstruction and are stated at cost. The cost comprises of the cost of materials, labour,overheads and spares. The capital projects are not depreciated.

g) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost andsubsequently they are stated at cost less accumulated amortization and any accumulatedimpairment losses.

h) Restricted deposits(funds

Restricted deposits/funds consists of cash covers and all amounts withheld by the lendingcommercial banks as collateral. Changes in the restricted deposits/funds account arepresented within financing activities in the statement of cash flows. These funds do not haveoriginal maturities of three months or less.

i) Capacity charges prepayments

These are fixed cost billed by independent power producers paid in advance. They areamortized over the remaining period of the power supply agreement(s).

j) Impairment of non-financial assets

Assets that are subject to amortization/depreciation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognized for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher of an asset'sfair value less costs to sell and value in use. For the purposes of assessing impairment,assets are grouped at the lowest levels for which there are separately identifiable cash flows(cash-generating units). Non-financial assets that suffered impairment are reviewed forpossible reversal of the impairment at each reporting date.

k) Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowingsare subsequently stated at amortized cost; any difference between the proceeds (net oftransaction costs) and the redemption value is recognized in profit or loss over the period of

(52)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30r JUNE 2016

NOTES (CONTINUED)


k) Borrowings (Continued)

the borrowings using the effective interest method. Borrowing costs on non-qualifying assetsare expensed in the period they accrue.

Borrowings that have been on lent from the government at interest rates that are belowmarket have been fair valued and the resulting fair value gains and losses have beenincluded in equity as advance towards share capital.

Capitaflsation of borrowing costs

Borrowing costs attributable to the construction of qualifying assets are capitalized as part ofthe cost of these assets over the period of construction to the extent that the assets arefinanced by borrowings.

1) Functional currency and translation of foreign currencies

Transactions in foreign currencies are translated to the functional currency at exchange ratesat the dates of the transactions. Monetary assets and liabilities denominated in foreigncurrencies at the reporting date are retranslated to the functional currency at the exchangerate at that date. Foreign currency gain or loss on monetary items is the difference betweenamortized cost in the functional currency at the beginning of the period, adjusted for effectiveinterest and payments during the period, and the amortized cost in foreign currency translatedat the exchange rate at the end of the period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured atfair value are retranslated to the functional currency at the exchange rate at the date that thefair value was determined. Foreign currency differences arising on retranslation arerecognised in profit or loss in the period in which they arise.

m) Inventories

Inventories comprising engine and vehicle parts, combustibles (fuels), and other electricalconsumables are stated at the lower of cost and net realizable value. Cost is determined usingthe weighted average method. Provision is made for the full value of obsolete inventories andstocks which are surplus to requirements. Net realizable value is the estimated selling price inthe ordinary course of business less applicable selling expenses. Obsolete items are materialsor spares which have no further use due to obsolescence, technological changes or otherfactors.

n) Operating leases

Leases where substantially all of the risks and rewards of ownership are not transferred to theCompany are classified as operating leases. Payments made under operating leases (net ofany incentives received from the lessor) are charged to profit or loss within other operatingexpenses on a straight-line basis over the period of the lease.

(53)



NOTES (CONTINUED)


o) Asset held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather thanthrough continuing use.

Immediately before classification as held-for-sale, the assets, or components, are remeasuredin accordance with the company's other accounting policy. Thereafter, generally the assets, aremeasured at the lower of their carrying amount and fair value less costs to sell. Impairmentlosses on initial classification as held-for-sale and subsequent gains and losses onremeasurement are recognised in profit or loss. Gains are not recognised in excess of anycumulative impairment loss.

Once classified as held-for-sale intangible assets and property, plant and equipment are nolonger amortised or depreciated.

(p) Current and deferred income tax

Income tax

Income tax expense comprises current and deferred tax. It is recognised in profit or lossexcept to the extent that it relates to items recognised directly in equity or OCl.

Current tax

Current tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the tax authority. The tax rates and taxlaws used to compute the amount are those that are enacted or substantively enacted by thereporting date. The current rate of corporate tax is 30%.

Current tax relating to items recognised directly in equity is recognised in equity and not inthe statement of profit or loss.

Deferred tax

Deferred tax is provided using the liability method on temporary differences at reporting datebetween the tax bases of assets and liabilities and their carrying amounts for financialreporting purposes. Deferred tax liabilities are recognised for all taxable temporarydifferences except:

* where the deferred tax liability arises from the initial recognition of an asset or liability ina transaction that is not a business combination and, at the time of the transaction,affects neither the accounting profit nor taxable profit or loss; and

(54)



NOTES (CONTINUED)


(p) Current and deferred income tax (Continued)

Deferred tax (Continued)

* in respect of taxable temporary differences associated with the investments inassociates where the timing of the reversal of the temporary differences can becontrolled and it is probable that the temporary differences will not reverse in theforeseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward ofunused tax credits and unused income tax losses, to the extent that it is probable that taxableprofit will be available against which the deductible temporary differences and carry-forwardof unused tax credits and tax losses can be utilized except:

* where the deferred tax asset relating to the deductible temporary difference arises fromthe initial recognition of an asset or liability in a transaction that is not a businesscombination and at the time of transaction, affects neither accounting profit nor taxableprofit or loss; and

* in respect of deductible temporary differences associated with the investments inassociates, deferred tax assets are recognised only to the extent that it is probable thatthe temporary differences will reverse in the foreseeable future and taxable profit will beavailable against which the temporary differences can be utilised.

The carrying amount of the deferred tax assets is reviewed at each reporting date andreduced to the extent that it is probable that future taxable profit will allow the deferred taxasset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply inthe year when the asset is realised or liability settled, based on the tax rates that have beenenacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised in the statement of changes in equity is recognisedin equity and not in the profit or loss account,

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offsetcurrent tax assets against current tax liabilities and when the deferredincome taxes assetsand liabilities relate to income taxes levied by the same tax authority on the same taxableentity.

(55)



NOTES (CONTINUED)


(p) Current and deferred income tax (Continued)

Value added tax

Revenues, expenses and assets are recognised at amounts net of value added tax exceptwhere the value added tax is incurred on a purchase of an asset or service is not recoverablefrom the taxation authority in which case the value added tax is recognised as part of the costof acquisition of the asset or part of the expense item as applicable.

The net amount of value added tax recoverable from, or payable to, the tax authority isincluded as part of the receivables or payables in the statement of financial position.

Tax exposures

In determining the amount of current and deferred tax, the Company takes into account theimpact of uncertain tax positions and whether additional taxes and interest may be due. Thisassessment relies on estimates and assumptions and may involve a series of judgmentsabout future events. New information may become available that causes the Company tochange its judgment regarding the adequacy of existing tax liabilities; such changes to taxliabilities will impact tax expense in the period that such a determination is made.

q) Financial assets

(i) Classification

Financial assets of the Group are classified as loans and receivables and available-for-salefinancial assets, based on the purpose for which the financial assets were acquired.

Loans and receivables are non-derivative financial assets with fixed or determinablepayments that are not quoted in an active market. They are included in current assets,except for maturities greater than 12 months after the reporting date. These are classified asnon-current assets. The Group's loans and receivables comprise 'non-current receivables','trade and other receivables', restricted deposits/funds and 'cash and cash equivalents' inthe statement of financial position.

Available-for-sale financial assets include equity investments. These are financial assets thatare neither classified as held for trading nor designated at fair value through profit or loss.

(ii) Recognition and measurement

Loans and receivables are initially recognised at fair value and subsequently carried atamortized cost using the effective interest method. Financial assets are derecognized whenrights to receive cash flows from the assets have expired or have been transferred and theGroup has transferred substantially all risks and rewards of ownership.

Available-for-sale financial assets are initially measured at fair value plus any directlyattributable transaction costs. Subsequent to initial recognition, they are measured at fairvalue and changes therein, other than impairment losses are recognised in OCI and

(56)



NOTES (CONTINUED)


q) Financial assets (Continued)

(ii) Recognition and measurement (Continued)

accumulated in the fair value reserve. When these assets are derecognised, the gain or lossaccumulated in equity is reclassified to profit or loss. Dividends earned whilst holding theavailable-for-sale assets are recognised in profit or loss as other income when the right ofpayment has been established.

(iii) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement offinancial position when there is a legally enforceable right to offset the recognized amountsand there is an intention to settle on a net basis or realize the asset and settle the liabilitysimultaneously.

(iv) Impairment

Non-derivative financial assets

A financial asset not classified as at fair value through profit or loss is assessed at eachreporting date to determine whether there is an objective evidence that it is impaired.

A financial asset is impaired if there is objective evidence of impairment as a result of one ormore events that occurred after the initial recognition of the asset, and that loss event(s) hadan impact on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by adebtor, restructuring of an amount due to the Group on terms that the Group would notconsider otherwise, indications that a debtor will enter bankruptcy, adverse changes in thepayment status of borrowers, and or economic conditions that correlate with defaults.

The Group considers evidence of impairment for financial assets measured at amortised cost(loans and receivables and held to maturity financial assets) at both a specific asset andcollective level. Those found not to be specifically impaired are then collectively assessed forany impairment that has been incurred but not yet identified. Assets that are not individuallysignificant are collectively assessed for impairment by grouping together assets with similarrisk characteristics.

An impairment loss in respect of a financial asset measured at amortised cost is calculatedas the difference between its carrying amount and the present value of the estimated futurecash flows discounted at the original effective interest rate. Losses are recognised in profit orloss and reflected in an allowance account against loans and receivables. When an eventoccurring after the impairment was recognised causes the amount of impairment loss todecrease, the decrease in impairment loss is reversed through profit or loss.

(57)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30m JUNE 2016

NOTES (CONTINUED)


q) Financial assets (Continued)

(iv) Impairment (Continued)

Non-derivative financial assets (Continued)

The carrying amounts of the Group's non-financial assets, other than investment property,inventories and deferred tax assets, are reviewed at each reporting date to determinewhether there is any indication of impairment. If any such indication exists, then the asset'srecoverable amount is estimated. An impairment loss is recognised if the carrying amount ofan asset or cash generating unit (CGU) exceeds its recoverable amount.

The recoverable amount of an asset or CGU is the greater of its value in use and its fairvalue less cost to sell. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset or CGU. Forimpairment testing, assets are grouped together into the smaller group of assets thatgenerates cash inflows from continuing use that are largely independent of the cash flows ofother assets or CGUs.

Impairment losses are recognized in profit or loss. Impairment losses in respect of CGU areallocated to their respective carrying amounts on a pro rata basis. Impairment loss isreversed only to the extent that the asset's carrying amount does not exceed the carryingamount that would have been determined, net of depreciation or amortization, if noimpairment loss had been recognised.

(v) Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similarfinancial assets) is primarily derecognised (i.e. removed from the Group's statement offinancial position) when, the rights to receive cash flows from the asset have expired, or theGroup has transferred its rights to receive cash flows from the asset or has assumed anobligation to pay the received cash flows in full without material delay to a third party under a'pass-through' arrangement; and either (a) the Group has transferred substantially all the risksand rewards of the asset, or (b) the Group has neither transferred nor retained substantially allthe risks and rewards of the asset, but has transferred control of the asset.

(58)



NOTES (CONTINUED)


r) Financial liabilities

(i) Recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair valuethrough profit or loss, loans and borrowings, or as derivatives designated as hedginginstruments in an effective hedge, as appropriate. The Group determines the classification ofits financial liabilities at initial recognition.

The financial liabilities are recognised initially at fair value and in the case of loans andborrowings plus directly attributable transaction costs.

The Group's financial liabilities include trade and other payables.

(ii) Derecognition

A financial liability is derecognised when the obligation under the liability is discharged,cancelled or expires.

When an existing financial liability is replaced by another from the same lender onsubstantially different terms, or the terms of an existing liability are substantially modified, suchan exchange or modification is treated as a de-recognition of the original liability and therecognition of a new liability, and the difference in the respective carrying amounts isrecognised in profit or loss.

All non-derivative financial liabilities are recognized on the date of commitment (trade date)and are recognised when the obligation expires, is discharged or cancelled, or there is asubstantial modification to the terms of the liability.

Financial liabilities at amortised cost

Financial liabilities that are not held-for-trading are classified as other financial liabilities. Debtsecurities issued, including foreign loans, that are not held-for-trading are classified into otherfinancial liabilities. Subsequent to initial recognition, these liabilities are measured atamortised cost using the effective interest method.

Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade andother payables.

Bank overdrafts that are repayable on demand and form and integral part of the Group's cashmanagement are included as a component of cash and cash equivalent for the purpose ofstatement of cash flows.

(59)



NOTES (CONTINUED)


s) Cash and cash equivalents

Cash and cash equivalents includes cash in hand, call deposits held with banks, other short-term highly liquid investments with original maturities of three months or less, and bankoverdrafts. Bank overdrafts are shown as current liabilities on the statement of financialposition.

t) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as aresult of past events, and when it is probable that an outflow of resources will be required tosettle the obligation and a reliable estimate of the amount can be made. Provisions for futureoperating losses are not recognized.

u) Deferred incomeGrants

Government grants received relating to the creation of electrification assets are included innon-current liabilities as deferred income and are credited to profit or loss in other income ona straight-line basis over the expected useful lives of the related assets.

Government grants which become receivable as compensation for expenses or lossesalready incurred, or for the purpose of giving immediate financial support to the entity with nofuture related costs, are recognised in profit or loss within other operating income for theperiod in which they become receivable.

Capital contributions received from customers

The contributions received in advance are credited to profit or loss within other operatingincome immediately when the customer is connected to the electricity network (refer to note11).

v) Finance income

Finance income comprises income from short-term investments in financial market products.Interest income is recognised as it accrues, in profit or loss, using the effective interestmethod.

w) Other operating income

Other operating income comprises of gains or losses on disposals of item property, plantsand equipment, amounts from amortization of deferred government grants (relating to theelectrification assets), customers contribution for service lines, government grants relating toexpenses, revenue grant from various donors, rental income and other miscellaneousincome.

(60)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 TH JUNE 2016

NOTES (CONTINUED)


x) Finance cost

Finance cost comprises interest payable on borrowings and interest resulting from theunwinding of discount on liabilities. Borrowing costs which are not capitalised (refer to note7(k) are recognised in profit or loss.

y) Employee benefit obligation

Defined contribution scheme

The Group pays contributions to publicly administered pension plans on a mandatory basiswhich qualifies to be defined contribution plan.

A defined contribution plan is a pension plan under which the Group pays fixed contributioninto a separate entity. The Group has no legal or constructive obligations to pay furthercontributions if the fund does not hold sufficient assets to pay all employees the benefitsrelating to employee service in the current and prior periods. The contributions arerecognized as an employee benefit expense in profit or loss in the periods during whichrelated services are rendered by employees.

All of the Group's employees are either members of the National Social Security Fund("NSSF") or Parastatals Pension Fund (PPF), Public Sector Pension Fund (PSPF), LocalAuthorities Pension Fund (LAPF) and Government Employees Pension Fund (GEPF) whichare defined contribution plans. Each employee must be a member of at least one of theaforementioned pension funds. The Group and employees both contribute a total of 20% ofthe employees' gross salaries to the pension funds.

Other long term employment benefits

The Group has an unfunded non-contributory employee long service award arrangement forits permanent and pensionable employees (the "Arrangement"), which provides for lump sumpayments to its employees on attaining a specific number of years of service with the Group,based on length of service and salary qualifies as a defined benefit plan. Payments for thelong service awards to the employees are made from the Group's internally generated funds.

The Group's net obligation in respect of other long-term employee benefits is the amount offuture benefit that employees have earned in return for their service in the current and priorperiods. That benefit is discounted to determine its present value. Re-measurements arerecognised in profit or loss in the period in which they arise.

(61)



NOTES (CONTINUED)


aa) Share Capital

Ordinary shares are classified as equity. Incremental cost directly attributable to the issue ofnew shares is shown in equity as a deduction, net of tax, from the proceeds.

bb) Advances towards Share Capital

Cash proceeds from the Government towards share capital, monies received fromgovernment in its capacity as shareholder and fair value gains from government low interestloans are accounted as advances towards share capital until conversion.

cc) Customer deposits

Service line and chargeable work orders deposits

The Group provides power connection services to customers, shifts existing utility lines tomake way for construction activities at the request of third parties and seconds its staff towork on external projects. Customers who make such request are required to deposit cash inlieu of cost to be incurred. Upon completion of the project, the cost incurred is transferred toand matched against the underlying deposit in profit or loss. Gain or loss is the resultantfigure on the service line/chargeable work orders made in profit or loss account.

Meter deposits

Cash received from customers for meter deposits is recognized as a long term liability and isrefunded to customers on termination of power supply contract.

(62)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 TH JUNE 2016

NOTES (CONTINUED)

8 FINANCIAL INSTRUMENTS -FAIR VALUE AND RISK MANAGEMENT

(a) Accounting classification and measurement of fair values

The Group has an established control framework with respect to the measurement of fairvalue. This include a management team that monitors need for fair valuation and sources forexperts that will perform the valuation.

When measuring the fair value of an asset or liability, the Group uses observable market dataas far as possible. Fair values are categorised into different levels in a fair value hierarchybased on the input used in the valuation techniques as follows;

Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.

Level 2: inputs other than quoted prices included in Level 1 that are observed for the assetsor liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data(unobserved inputs)

If the input used to measure the fair value of an asset or liability fall into different levels of thefair value hierarchy, then the fair value measurement is categorised in its entirety in the samelevel of the fair value hierarchy as the lowest level input that is significant to the entiremeasurement.

The following table shows the carrying amounts and fair value of financial assets andfinancial liabilities, including their levels in the fair value hierarchy as described above:

Carrying Fair Level I Level 2 Level 3 Totalamount valueShs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm

Available for saleinvestments 1,056 1,056 1,056 1,056

1,056 1,056 - - 1,056 1,056

During the year there were no any movements between the fair value levels.

(63)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30TH JUNE 2016

NOTES (CONTINUED)

8 FINANCIAL INSTRUMENTS -FAIR VALUE AND RISK MANAGEMENT

(a) Accounting classification and measurement of fair values (Continued)

Financial instruments at amortized costs

The Group does not have a very accurate basis for calculating the fair value of the otherfinancial instruments carried at amortized cost. However, its overall assessment is that theirfair values would not be significantly different from the amortized cost at which they arestated because the majority are short term.

2016 2015Consolidated Carrying Fair Carrying Fair

amount value amount valueShs'm Shs'm Shs'm Shs'm

Financial assets not measured atfair valueTrade receivables and otherreceivables 179,995 179,995 327,363 327,363Restricted deposits/funds 72,722 72,722 65,275 65,275Cash and cash equivalents 129,509 129,509 163,686 163,686

382,226 382,226 556,324 556,324

Financial liabilities not measuredat fair valueBorrowings (1,529,794) (1,529,794) (1,362,881) (1,362,881)Trade payables and otherpayables* (958,311) (958,311) (796,392) (796,392)

(2,488,105) (2,488,105) (2,159,273) (2,159,273)

Separate

Financial assets not measured alfair valueTrade receivables and otherreceivables 182,791 182,791 327,931 327,931Restricted deposits/funds 72,722 72,722 65,275 65,275Cash and cash equivalents 129,509 129,509 163,684 163,684

385,022 385,022 556,890 556,890

Financial liabilities not measuredat fair valueBorrowings (1,529,794) (1,529,794) (1,362,881) (1,362,881)Trade payables and otherpayables* (958,311) (958,311) (796,392) (796,392)

(2,488,105) (2,488,105) (2,159,273) (2,159,273)*Accrued expenses are not included.

(64)



NOTES (CONTINUED)

8 FINANCIAL INSTRUMENTS -FAIR VALUE AND RISK MANAGEMENT (CONTINUED)

(b) Financial risk management

The Group has exposure to the following risks arising from financial instruments:

* Credit risk* Liquidity risk* Market risk

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of theCompany's risk management framework. The Board has established Audit and RiskCommittee (ARC) which is responsible for developing and monitoring the Company's riskmanagement policies. The Committee reports regularly to the Board of Directors on itsactivities.

The Group's risk management policies are established to identify and analyse the risks facedby the Group, to set appropriate risk limits and controls, and to monitor adherence to risklimits. Risk management policies and systems are reviewed regularly to reflect changes inmarket conditions, products and services offered. The Group, through its training andmanagement standards and procedures, aims to develop a disciplined and constructivecontrol environment, in which all employees understand their roles and obligations.

(65)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30"" JUNE 2016

NOTES (CONTINUED)


(b) Financial risk management (Continued)

Risk management framework (Continued)

The ARC oversees how management monitors compliance with the Group's riskmanagement policies and procedures, and reviews the adequacy of the risk managementframework in relation to the risks faced by the Group. The Group's ARC is assisted in itsoversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews ofrisk management controls and procedures, the results of which are reported to the Audit andRisk Committee.

The Group's exposure to risk, its objectives, policies and processes for managing the risk andthe methods used to measure it have been consistently applied in the years presented,unless otherwise stated.

This note presents information about the Group's exposure to each of the above risks, theGroup's objectives, policies and processes for measuring and managing risk, and theGroup's management of capital. Further quantitative disclosures are included throughoutthese financial statements.

i. Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financialinstrument fails to meet its contractual obligations, and arises principally from the Group'strade and other receivables.

Credit risk arises from cash at bank and trade and other receivables. The Group minimizescredit risk from its trade receivables by prompt disconnection of customers with overduebalances. The Group has policies in place to ensure that debts are recoverable within 30days after the bill is issued to customers. Credit risk arising from cash at bank is managed byhaving deposits with more than one bank with good reputation.

The carrying amounts of financial assets represent the maximum credit exposure. Themaximum exposure to credit risk at the reporting date was as follows:


Shs 'm Shs 'm Shs 'm Shs 'm

Cash and cash equivalents 129,509 163,686 129,170 163,684Restricted deposits/funds 72,722 65,275 72,722 65,275Trade receivables 168,969 308,216 168,969 308,216Other receivables* 11,025 19,147 13,821 19,715

382,225 556,324 384,682 556,890*Does not include deposits and VAT recoverable balance

No collateral is held for any of the above assets. Analysis of trade and other receivables isprovided in note 26.

(66)



NOTES (CONTINUED)

8 FINANCIAL INSTRUMENTS- FAIR VALUE AND RISK MANAGEMENT (CONTINUED)


i. Credit risk (Continued)

As at 3 0 1h June 2016, the aging of trade debtors that were not impaired was as follows;


Shs 'm Shs 'm Shs 'm Shs 'mPast due but not impaired:- by up to 30 days 19,441 30,125 19,441 30,125- by 31 to 60 days 14,364 18,152 14,364 18,152- by 61 to 90 days 14,173 16,910 14,173 16,910- Over 91 days 120,991 243,029 120,991 243,029

Total trade debtors not impaired 168,969 308,216 168,969 308,216

Impaired 161,582 132,439 161,582 132,439

Gross trade debtors (Note 26) 330,551 440,655 330,551 440,655

The movement in the allowance for impairment in respect of trade receivables during theperiodlyear was as follows:

Consolidated SeparateShs'm Shs'm

Balance at 1 1 January 2014 90,570 90,570Impairment loss recognized during the period 41,869 41,869Amounts utilized - -Balance at 30h June 2015 132,439 132,439

Balance at the start of year/period 132,439 132,439The impairment recognized during the year 29,143 29,143

Balance at 30t June 2016 161,582 161,582

Cash and cash equivalents

The Group held cash and cash equivalents of Shs 129,509 million (Company: Shs 129,170million) at 3 01h June 2016 (2015: Shs 163,686 million for Group and Shs 163,684 forCompany), which represents its maximum credit exposure on these assets. The cash andcash equivalents are generally held with bank and financial institution counterparties of goodreputation.

(67)



NOTES (CONTINUED)



ii. Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligationsassociated with its financial liabilities that are settled by delivering cash or another financialasset. The Group's approach to managing liquidity is to ensure, as far as possible, that it willalways have sufficient liquidity to meet its liabilities when due, under both normal andstressed conditions, without incurring unacceptable losses or risking damage to the Group'sreputation.

Prudent liquidity risk management implies maintaining sufficient cash and the availability offunding through an adequate amount of committed credit facilities.

The table below analyses the Group's financial liabilities that will be settled into relevantmaturity groupings based on the remaining period at the reporting date to the contractualmaturity date. The amounts disclosed in the table below are the contractual undiscountedcash flows. Balances due within 12 months equal their carrying amounts as the impact ofdiscounting is not significant.

Carrying Contractual Less than Between Between Over 5Consolidated amount cash flows 1 year I - 2 years 2- 5 years years

Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm

Non-derivativefinancial liabilitiesAt 3 0th June 2016Borrowings 1,529,794 1,168,294 399,526 71,464 302,138 395,166Trade and otherpayables 958,311 958,311 958,311 - - -

2,488,105 2,126,605 1,357,837 71,464 302,138 395,166

Carrying Contractual Less than Between Between Over 5Separate amount cash flows 1 year 1 - 2 years 2- 5 years years


Non-derivativefinancial liabilitiesAt 30h June 2016Borrowings 1,529,794 1,168,294 399,526 71,464 302,138 395,166Trade and otherpayables 958,135 958,135 958,135 - - -

2,487,929 2,126,429 1,357,661 71,464 302,138 395,166

(68)



NOTES (CONTINUED)



ii. Liquidity risk (Continued)

Carrying Contractua Less than Between Between Over 5amount I cash 1 year I - 2 2- 5 years years

Consolidated flows yearsShs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm

Non-derivativefinancial liabilitiesAt 30h June 2015Borrowings 1,362,881 1,785,233 255,750 190,714 347,970 990,799Trade and otherpayables 796,392 796,392 796,392 - - -

2,159,273 2,581,625 1,052,142 190,714 347,970 990,799

Carrying Contractual Less than Between Between Over 5Separate amount cash flows 1 year I - 2 years 2- 5 years years


Non-derivativefinancial liabilitiesAt 30t June 2015Borrowings 1,362,881 1,785,233 255,750 190,714 347,970 990,799Trade and otherpayables 796,392 796,392 796,392 - - -

2,159,273 2,581,625 1,052,142 190,714 347,970 990,799

(69)



NOTES (CONTINUED)

8 FINANCIAL INSTRUMENTS - FAIR VALUE AND RISK MANAGEMENT (CONTINUED)


iii. Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interestrates etc. will affect the Group's income or the value of its holdings of financial instruments.

The objective of market risk management is to manage and control market risk exposurewithin acceptable parameters, while optimizing returns.

Foreign exchange risk

Foreign exchange risk arise from commercial transaction as the Group incurs a significantportion of its in US dollar and the Euro while its earnings are based in Tanzania shillings. TheGroup is exposed to foreign exchange risk arising from various currency exposures, primarilywith respect to the Dollar and the Euro.

The summary of quantitative data about Group's exposure to currency risks as reported tomanagement of the Company on its risk management policy is as follow:

Equivalent amounts in shillings (in millions) 2016 2015Consolidated USD EURO USD EURO

Trade and other receivables 27,237 2,311 6,495 -Cash and cash equivalents 39,201 100 96,022 1,695Borrowings (544,092) (135,676) (499,324) (130,415)Trade and other payables (463,936) (5,016) (373,134) (7,710)

Net exposure (941,590) (138,281) (769941. (136,430)

Separate

Trade and other receivables 27,237 2,311 6,495 -Cash and cash equivalents 39,201 100 96,022 1,695Borrowings (544,092) (135,676) (499,324) (130,415)Trade and other payables (463,936) (5,016 (373,134 (7,710)

Net exposure (941,590) (138,281) (769,941) (136,430)

(70)



NOTES (CONTINUED)

8 FINANCIAL INSTRUMENTS - FAIR VALUE AND RISK MANAGEMENT (CONTINUED)


iii. Market risk (Continued)

The following significant exchange rates applied during the year/period (Shs values for 1 unitof selected currencies);

Average rate Reporting rate

2016 2015 2016 2015

USD 2,222.69 1,797.06 2,189.75 2,030.40Euro 2,483.26 2,257.03 2,430.95 2,265.11GBP 3,301.51 2,893.47 2,933.06 3,180.80Rand 163.12 169.38 157.48 173,30SEK 262.15 242.30 258.61 245.59

Sensitivity analysis

The table below shows the Group's sensitivity to foreign exchange rates on its US dollar andEuro financial instruments excluding obligations which do not present a material exposure.The Group has considered movements in these currencies over the last three years and hasconcluded that a 10% movement in rates is a reasonable benchmark.

Consolidated Strengthening WeakeningProfit or loss Equity* Profit or loss Equity*

30m June 2016USD-10% movement (Loss)/gain (94,159) (65,911) 94,159 65,911Euro-1 0% movement (Loss)/gain (13,828) (9,680) 13,828 9,680

30th June 2015USD-10% movement (Loss)/gain (76,994) (53,896) 76,994 53,896Euro-10% movement (Loss)/gain (13,643) (9,550) 13,643 9,550

Separate Strengthening WeakeningProfit or loss Equity* Profit or loss Equity*

30t June 2016USD-10% movement (Loss)/gain (94,159) (65,911) 94,159 65,911Euro-10% movement (Loss)/gain (13,828) (9,680) 13,828 9,680

30t June 2015USD-10% movement (Loss)/gain (76,994) (53,896) 76,994 53,896Euro-10% movement (Loss)/gain (13,643) (9,550) 13,643 9,550TFigures are presented net of tax.

(71)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30r. JUNE 2016

NOTES (CONTINUED)




Cash flow and fair value interest rate risk

As the Group has no significant interest-bearing assets, the Group's income and operatingcash flows are substantially independent of changes in market interest rates.

The Group's interest rate risk arises from long-term borrowings. Borrowings issued atvariable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixedrates expose the Group to fair value interest rate risk.

Profile

At the reporting date the interest rate profile of the Group's interest-bearing financialinstruments was as follows;

Consolidated SeparateCarrying amount Carrying amount

2016 2015 2016 2015Shs 'm Shs 'm Shs 'm Shs 'm

Fixed rate instrumentsFinancial assetsFinancial liabilities (1,127,172) (993,075) (1,127,172) (993,075)

J1,127,172) (993,075) (1,127,172) 993,075

Variable rate instrumentsFinancial assetsFinancial liabilities (402,622) (369,806) (402,622) J69,806

(402,622) (369,806) (402,622 (369,806)

Fair value sensitivity analysis for fixed rate instruments

The Group has loans that were issued below market rates. These loans are fair valued oninitial recognition.

The benefit of the Government loans issued to the Group at rates below the market is initiallyrecognized to advance towards share capital. The values of the loans are not subject tochange due to the changes in relevant variables in the market.

(72)



NOTES (CONTINUED)




Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points interest rates at the reporting date would have increased(decreased) profit or loss by the amounts below. The United States dollars interest rates areused in determining the fair value of embedded derivatives if any. This analysis assumes thatall other variables in particular foreign currency rates, remain constant.

Consolidated SeparateProfit or loss Profit or loss

100bp 100bp 100bp 100bpincrease decrease increase decreaseShs 'm Shs 'm Shs 'm Shs 'm

2016Variable rate instruments (4.02) 4.02 (4.02) 4.02

(4.02) 4.02 (4.02) 4.022015Variable rate instruments (3.69) 3.69 (3.69) 3.69

3-69 3.69 (3.69) 3.69

The Group has elected not to hedge interest risk and there would therefore be no impact onequity.

iv. Capital risk management

The Group's objectives when managing capital are aimed at safeguarding its ability tocontinue as a going concern in order to provide returns for the shareholder and to maintainan optimal capital structure to reduce the cost of capital.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as netdebt divided by total capital. Net debt is calculated as total borrowings less cash and cashequivalents net of restricted deposits/funds. Total capital is calculated as equity plus net debt.

(73)



NOTES (CONTINUED)



iv. Capital risk management (Continued)

The gearing ratios at 3 0 th June 2016 and 3 01h June 2015 were as follows:Consolidated Separate2016 2015 2016 2015

Shs'm Shs'm Shs'm Shs'm

Total borrowings 1,529,794 1,362,881 1,529,794 1,362,881Less: cash and cash equivalents (129,509) (163,686) (129,170) (163,684)

Net debt 1,400,285 1,199,195 1,400,624 1,199,197

Total equity 1,968,507 609,202 1,973,270 610,808

Gearing ratio 0.71:1 1.97:1 0.71:1 1.96:1

9 REVENUE

Consolidated Separate12 months 18 months 12 months 18 months

to 30h to 30 th to 30th to 30mJune 2016 June2015 June2016 June2015


Domestic low usage 52,904 61,344 52,904 61,344General use 663,404 956,222 663,404 956,222Low voltage supply 157,551 231,982 157,551 231,982High voltage supply 396,283 552,883 396,283 552,883Zanzibar Electricity Corporation 68,015 98,767 68,015 98,767Bulyanhulu Gold Mines 41,583 56,558 41,583 56,558

1,379,740 1,957,756 1,379,740 1,957,756

(74)



NOTES (CONTINUED)

10 COST OF SALESConsolidated Separate

12 months 18 months 12 months 18 monthsto 30t to 30 to 30h to 3 0t*

June2016 June2015 June2016 June2015Shs 'm Shs 'm Shs 'm Shs 'm

Own generation and transmission 564,612 686,624 564,612 686,624Purchased electricity 483,555 589,106 483,555 589,106Distribution expenses 256,002 337,168 256,002 337,168Depreciation 127,599 133,776 127,599 133,776Loss on revaluation of property,plant and equipment 37,335 - 37,335 -

1,469,103 *1,746,674 1,469,103 *1,746,674

*During the year, the Group modified classification of income from sale of gas by Songas (an IPP) from otheroperating income to cost of sales. The modification resulted into a change in classification for prior year amountingto Shs 24 Billion. This presentation is in line with the contractual agreement between TANESCO and Songas. Thereclassification has been made to enhance comparability with current year presentation.

11 OTHER OPERATING INCOMEConsolidated Separate

12 months 18 months 12 months 18 monthsto 30h to 3 0th to 30t to 30 1h

June 2016 June 2015 June 2016 June 2015Shs 'm Shs 'm Shs 'm Shs 'm

Government contribution 6,754 156,344 6,754 156,344Customer contributions on worksorders 57,039 78,639 57,039 78,639Interest on overdue electricity bills 16,216 27,480 16,216 27,480Revenue grant from various donors - 9,456 - 9,456Reconnection fees 315 641 315 653Rental income 21,542 6,950 21,542 7,005Profit on disposal of property, plant andequipment 841 8 841 8Amortisation of deferred capital grants(Note 29) 50,321 57,062 50,232 57,034Other miscellaneous income 10,303 13,148 10,291 13,148

163,331 *349,728 163,230 *349,767

*During the year, the Group modified the classification of income from sale of gas by Songas (an IPP) from otheroperating income to cost of sales. The modification resulted into a change in classification for prior year amountingto Shs 24 Billion. This presentation is in line with the contractual agreement between TANESCO and Songas. Thereclassification has been made to enhance comparability with current year presentation.

(75)



NOTES (CONTINUED)

12 OPERATING EXPENSESConsolidated Separate

12 months 18 months 12 months 18 monthsto 3 0 th to 3 0m to 30t to 30h


Provision for Impairment of tradereceivables 29,143 41,869 29,143 41,869Provision for Impairment of otherreceivables 17,849 - 17,849 -Staff costs (note 15) 73,631 109,702 71,264 108,793Depreciation 13,018 18,482 12,879 18,445Amortisation of intangibles 618 1,806 618 1,806Depreciation charge on investment property 181 272 181 272Write (off)/back of provision for obsoleteinventories 331 (697) 331 (697)Repairs and maintenance costs - 14 - -Legal expenses 5,733 4,616 5,733 4,616Consultancy expenses 2,848 1,818 2,848 1,817Transport and travel expenses 9,507 16,438 9,064 16,218Audit fees 857 1,570 845 1,570Insurance 492 8,480 492 8,480Bank charges and commission 604 1,088 602 1,087Cable and telegram (bandwidth) 8,962 14,649 8,962 14,649Advertisement expenses 2,269 2,390 2,242 2,359Security expenses 3,139 3,535 3,139 3,535Consumable office and stores 267 349 253 343Other administration expenses 28,203 24,009 28,741 23,869Suppliers interest 7,115 10,782 7,115 10,782Foreign exchange differences 36,873 38,525 36,873 38,525Loss on revaluation of property, plant andequipment 32,493 - 32,493 -

274,133 299,697 271,667 298,338

Depreciation on property, plant andequipment charged to:

- Cost of sales 127,599 133,776 127,599 133,776- Operating expenses 13,018 18,482 12,879 18,445

Total depreciation charge (Note 16) 140,617 152,258 140,478 152,221

(76)



NOTES (CONTINUED)

13 FINANCE COST - NETConsolidated Separate

12 months 18 months 12 months 18 monthsto 30 to 30t to 30h to 30t


Foreign exchange loss on borrowings 59,059 143,046 59,059 143,046Interest expense 60,214 100,950 60,214 100,950Discount unwinding on borrowing 39,107 42,459 39,107 42,459Other finance costs 289 3,458 289 3,458

158,669 289,913 158,669 289,913

Discount unwinding relates to thefollowing borrowings;Government of Tanzania [Note 30 (a)] 5,364 4,306 5,364 4,306Government of Tanzania (Deferred capacitycharges)[Note 30(c)] 19,110 26,493 19,110 26,493EDCF(KOREA)- TEDAP[Note 30 (g)] 1,040 1,158 1,040 1,158ADF - Electricity V[Note 30 (h)] 1,032 1,432 1,032 1,432OPTICAL CABLE (Long term) [Note 30 (d)] 270 - 270 -TA 3569 [Note 30 (f)] 368 - 368 -EIB [Note 30 (j)] 1,749 - 1,749 -TA 4798 [Note 30 (k)] 1,949 - 1,949 -EDCF(KOREA) [Note 30 (i)] 1,278 - 1,278 -ADF - Back bone [Note 30 (1)] 752 - 752 -JICA [Note 30 (m)] 1,331 - 1,331 -Government on lent IDA [Note 30 (q)] 4,864 9,070 4,864 9,070

39,107 42,459 39,107 42,459

(77)



NOTES (CONTINUED)

14 INCOME TAX CHARGE


to 30th to 301 to 3 0 th to 30teJune2016 June2015 June2016 June2015


Current tax charge

Deferred income tax (credit)/charge (11,733) (56,943) (11,733) (56,943)Reversal of previously recognized deferredtax asset - 151,816 - 151,816Alternative Minimum Tax for YOI 2011 - 1,640 - 1,640Alternative Minimum Tax for YOI 2012 - 2,459 - 2,459Alternative minimum tax for Y012013 2,801 - 2,801 -

(8,932) 98,972 (8,932) 98,972

The tax on the Company's result before taxdiffers from the amount that would arise usingthe basic tax rate as follows:Loss before tax (358,487) (27,094) (355,330) (25,488)

Tax calculated at a tax rate of 30% (2015:30%) (107,546) (8,128) (106,599) (7,646)

Expenditure permanently disallowed 22,763 927 22,718 917Deferred income tax movement notrecognised 167,358 299,598 166,257 299,188Change in estimate relating to prior year(s) (94,546) (197,586) (94,109) (197,586)Share of loss of equity accounted investee 238 62 - -Alternative Minimum Tax 2,801 4,099 2,801 4,099

Further information on deferred income tax is presented in note 24.

(78)



NOTES (CONTINUED)

15 EMPLOYEE BENEFIT EXPENSE


to 30th to 30t to 30t to 3 0 hJune2016 June2015 June2016 June2015

Shs 'm Shs 'm Shs 'm Shs 'mStaff costs charged to cost of salesand operating expensesaccounts comprise:

Salaries and wages 226,453 313,579 224,279 312,725Social security costs (definedcontribution scheme) 25,601 35,191 25,460 35,173Long service awards (other employeebenefits)(Note 31) 2,599 1,975 2,599 1,975Skills and Development Levy 8,986 13,207 8,934 13,170

263,639 363,952 261,272 363,043

Classified as:Cost of sales 190,008 254,250 190,008 254,250Operating expenses 73,631 109,702 71, 264 108,793

263,639 363,952 261,272 363,043

(79)



NOTES (CONTINUED)

16 PROPERTY, PLANT AND EQUIPMENT

CONSOLIDATED Hydro Thermo Transmission Distribution Land and Motor Strategic Officegeneration generation systems systems Buildings vehicles sRares equipment Total

Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm She 'm Shs 'mCostlValuation

Balance at 1s January 2014 457,814 552,930 667,136 1,006,810 228,877 58,721 13,168 68,377 3,053,833Capitalised during theperiod - - 17,863 197,156 255 9,141 1,413 4,615 230,443

Disposals - - - - - (258) - - (258)

Balance at 301h June 2015 457,814 552,930 684,999 1,203,966 229,132 67,604 14,581 72,992 3,284,018

Balance at 1s July 2015 457,814 552,930 684,999 1,203,966 229,132 67,604 14,581 72,992 3,284,018Capitalised during theperiod - 290,341 82,158 922,986 6,348 1,246 1,499 20,485 1,325,063Reclassification from assetsheld for sale - - - 561 - - - - 561Write off of cost of revaluedassets (68,924) (140,049) (100,014) (214,032) (29,129) - - - (552,148)Gain on revaluation 365,082 339,599 387,705 1,033,547 84,847 - - - 2,210,780

Balance at 3 0 'h June 2016 753,972 1,042,821 1,054,848 2,947,028 291,198 68,850 16,080 93,477 6,268.274

(80)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30e JUNE 2016

NOTES (CONTINUED)

16 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

CONSOLIDATED Hydro Thermo Transmission Distribution Land and Motor Strategic Officegeneration generation system systems Buildings vehicles spares equipment Total

Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'Im Shs 'm Shs 'm She 'mAccumulated depreciationand impairment losses

Balance at 1s' January 2014 42,414 63,861 57,429 98,932 17,465 47,743 1,961 61,259 391,064Depreciation for the period 15,906 38,872 24,646 53,677 6,887 6,989 669 4,416 152,062Disposals - - - - - (258) - - (258)Balance at 301h June 2015 58,320 102,733 82,075 152,609 24,352 54,474 2,630 65,675 542,868

Balance at 111 January 2015 58,320 102,733 82,075 152,609 24,352 54,474 2.630 65,675 542,868Depreciation for the period 10,604 37,316 17,939 61,423 4,778 4,722 317 3,518 140,617Disposals - - - - - - - - -Write off on revaluation (68,924) (140.049) (100,014) (214,032) (29,130) - - - (552,149)

Balance at 30'e June 2016 -. . . 59,196 2,947 69,193 131,136

Carrying AmountsAt 30*' June 2015 399,494 450,197 602,924 1,051,357 204,780 13,130 11,951 7,317 2,741,150

At 30th June 2016 753,972 1,042,821 1,054,848 2,947,028 291,198 9,654 13,133 24,284 6,136,938

(81)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30" JUNE 2016

NOTES (CONTINUED)


SEPARATE Hydro Thermo Transmission Distribution Land and Motor Strategic Officegeneration generation systems systems Buildings vehicles sares equipment Total

Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'mCostNaluation

Balance at 11 Jan 2014 457,814 552,930 667,136 1,006,810 228,877 58.721 13,168 68,377 3,053,833Capitalized during the year - - 17,863 197,156 255 8,860 1,413 4,578 230,125Disposals - - - - - (258) - - 258Balance at 30h June 2015 457,814 552,930 684,999 1,203,986 229,132 67,323 14,581. 72,955 3,283,700

Balance at 15' July 2015 457,814 552,930 684,999 1,203,966 229,132 67,323 14,581 72,955 3,283,700Capitalized during theperiod - 290,341 82,158 922,986 6,348 1,246 1,499 19,579 1,324,157Re-class from held for sale - - - 561 - - - - 561Write off on revaluation (68,924) (140,049) (100,014) (214,032) (29,130) - - - (552,149)Revaluation 365,082 339,599 387,705 1.033,547 84,847 - - - 2,210,780Balance at 30t June 2016 753,972 1,042,821 1,054,848 2 947,028 291,197 68,569 16,080 92,534 6,267,049

(82)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 3 0 m8 JUNE 2016

NOTES (CONTINUED)


SEPARATE Hydro Thermo Transmission Distribution Land and Motor Strategic Officegeneration generation systems systems Buildings vehicles spares equipment Total

Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm

Accumulated depreciationand impairment losses

Balance at 1st Jan 2014 42,414 63,861 57,429 98,932 17,465 47,743 1,961 61,259 391,064Depreciation for the year 15,906 38,872 24,646 53,677 6,887 6,954 669 4,414 152,025Disposals - - - - (258 - - (258)Balance at 30th June 2015 58,320 102,733 82,075 152,609 24,362 54,439 2,630 65,673 542,831

Balance at 1st July 2015 58,320 102,733 82,075 152,609 24,352 54,439 2,630 65,673 542,831Depreciation for the period 10,604 37,316 17,939 61,423 4,778 4,652 316 3,450 140,478Write off on revaluation (68924) (140,049) (100,014) (214,032 (29,130) - - - (552,149)Balance at 30 th June 2016 - - - - - 59,091 2,946 69,123 131,160

Carrying AmountsAt 30th June 2015 399,494 450,197 602,924 1,051,357 204,780 12,884 11,951 7,282 2,740,869

At 30 th June 2016 753,972 1,042,821 1,054,848 2,947,028 291,197 9,478 13,134 23,411 6,135,889

(83)



NOTES (CONTINUED)


Property, plant and equipment with the exception of motor vehicles, strategic spares andoffice equipment were revalued as at 3 0th June 2016 by a professional valuer, Land MastersCombine Limited, in Association with RHAS Chartered Valuers and Brokers of SydneyAustralia, and CB Richard Ellis (CBRE) of Botswana.

Hydro generation, thermal generation, transmission and distribution assets were valued on adepreciated replacement cost basis. Buildings were valued on open market value basis,except for specialized assets and those in locations where there was no open market, where adepreciated replacement cost basis was used.

The revaluation surplus net of applicable deferred income taxes was credited to revaluationreserve in shareholders' equity. Significant inputs applied by the valuer in revaluation areunobservable, consequently, directors have classified the fair value exercise as level 3.

Valuation technique and significant unobservable inputs

The following table shows the valuation technique used in measuring the fair value of theproperty, plant and equipment as well as the significant unobservable inputs:

Valuation technique Significant unobservable inputs

The Company has used the Net Replacement Selling price of similar pieces of land asCost Approach (NRCA) to determine the value of subject plots reviewed.its generation assets, distribution assets, Cost of construction per square-metertransmission assets and buildings. This approach (is a common method of valuing specialized as (cope itinictie r oidedwell as non-income producing assets. by the National Construction Council);

The Company has used the Market approach for Depreciation (usually ranging from 5%,

land. 15% and 30% depending on the type ofbuilding);

NRCA requires that a Gross Replacement Cost(GRC) is ascertained to which a depreciationallowance using the Residual Useful Life (RUL)of the subject asset and other value-affectingfactors are charged to arrive at its DepreciatedReplacement Cost (DRC) (referred to as theDepreciated Optimized Replacement Cost inCompany's valuation report).

The GRC is the new or current replacement costof acquiring a similar asset having similarproductive capacities as the existing asset anddepreciated according to age, economicobsolescence, and condition of the existingasset.

(84)



NOTES (CONTINUED)

17 CAPITAL WORK IN PROGRESSConsolidated Separate

2016 2015 2016 2015Shs'm Shs'm Shs'm Shs'm

At start of year/period 1,521,601 427,424 1,521,601 427,424Capitalised borrowing costs** 7,118 7,488 7,118 7,488Transfer from stores 236,492 216,391 236,492 216,391Expenditure during the year/period 930,970 1,317,004 930,970 1,317,004

2,696,181 1,968,307 2,696,181 1,968,307Transfer to subsidiary - (190) - (190)Transfer to stores (4,993) - (4,993) -Transferred to property, plant andequipment (1,324,157) (230,125) (1,324,157 (230,125)

At end of yearlperiod 1,367,031 *1,737,992 1,367,031 *1,737,992

* During the year, the Group modified the classification of specific inventory items from inventory to capital work inprogress. These items includes meter stocks, poles, transformers, electric cables and other electrical equipmentwhich are used in the construction of transmission and distribution lines and expected to be used in more than oneperiod. The modification resulted into a reclassification of Shs 216 billion relating to prior year from inventory tocapital work in progress.

18 INTANGIBLE ASSET



At the start of year/period 928 2,734 928 2,734Amortization charge (618) (1,806) (618) (1,806

At the end of the yearlperiod 310 928 310 928

The intangible asset amount relate to the purchase of software.

(85)



NOTES (CONTINUED)

19 INVESTMENT PROPERTY


Shs 'm Shs 'm Shs 'm Shs 'mCost

Balance at beginning of the year/period 906 906 906 906

At the end of the yearlperiod 906 906 906 906

Accumulated depreciationBalance at start of year (453) (181) (453) (181)Depreciation charge for the year/period (181) (272) (181) (272)

At the end of the year/period (634) (453) (634) (453)

Net Book value at the end of yearlperiod 272 453 272 453

Investment property comprises the property leased to the Consortium of medical doctors -Tumaini Hospital at Magore Street. During the year, investment property rentals of Shs 19,824million (2015: Nil) were included within 'other income - rental income line item' (See Note 11).This amount is long outstanding and management has made a provision for doubtful debtamounting to Shs 17,842 million in respect of this balance (2015: Nil).

20 INVESTMENT IN SUBSIDIARY


Shs 'm Shs 'm Shs 'm Shs 'mInvestment in Tanzania GeothermalDevelopment Company Limited - - 1,000 1,000

Balance at 30t June - - 1,000 1,000

This is a fully-owned Subsidiary company of TANESCO established in November 2013 togenerate power from geothermal sources.

(86)



NOTES (CONTINUED)

21 INVESTMENT IN ASSOCIATE

In October 2013, TANESCO entered into an agreement with Shanghai Electric PowerCompany Limited (SEPC) to establish a new company which will develop the Kinyerezi III600MW gas fired power generation project. In 2014, TANESCO invested Shs 1,353,200,000(USD 800,000) which is equivalent to 40% of the share capital of the formed Company,Shangtan Power Generation Company Limited, the investee meets the criteria of anassociate.

The investment is accounted for using the equity method in the consolidated financialstatements and carried at cost in the separate financial statements. The financial statementsof the associate from which the attributable loss was taken were for year ended 31st

December 2015, this is consistent with prior year.

The following table analyses the financial information about the associate.


Shs 'm Shs 'm Shs 'm Shs 'mCurrent assets 1,638 2,941 1,638 2,941Non-current assets 4,656 2 4,656 2Current liabilities (5,454) (123) (5,454) (123)Non-current liabilities - - -Net assets (100%) 840 2,820 840 2,820Group share of net assets (40%) 336 1,129 336 1,129Foreign exchange difference oninitial recognition 16 16 16 16Carrying amount of interest inassociate 352 1,145 352 1,145

Revenue - - - -Profit from continuing operations (1,980) (520) (1,980) (520)Other comprehensive income - -Total comprehensive income (1,980) (520) (1,980) (520)

The following table analyses the carrying amount and share of comprehensive loss for theyear of the associate.


Shs 'm Shs 'm Shs 'm Shs 'mCarrying amount of interest inassociates 1,145 1,353 1,353 1,353Share of:Comprehensive loss for the year Iperiod (793) (208) - -

Balance at 30th June 352 1,145 1,353 1,353

(87)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30T JUNE 2016

NOTES (CONTINUED)

22 OTHER INVESTMENTSConsolidated Separate2016 2015 2016 2015

Shs 'm Shs 'm Shs 'm Shs 'mEast African Cables Limited (a) 1 1 1 1Songas Limited (b) 1,055 1,055 1,055 1,055

1,056 1,056 1,056 1,056Less: Accumulated impairmentloss(provision) - - - -Add: Fair value changes - - - -

1,056 1,056 1,056 1,056

As at 3 0th June 2016, the Company had the following investments:

a) 3,180,000 shares of Shs 10 each in East African Cables (Tanzania) Limited representing10% of total issued share capital in the company. The company engages in themanufacture and sale of electric cables and conductors as well as distribution of telecom,structured, fibre optic cables and accessories.

b) 10,000 shares of USD 100 each in Songas Limited representing 9.56% of total issuedshare capital of the company. The company engages in gas processing and transportationand generation of electricity in Tanzania using natural gas from Songosongo Island.

The management believes the difference between the current carrying amount of theinvestments and the fair value is insignificant.

23 CAPACITY CHARGES PREPAYMENTConsolidated Separate2016 2015 2016 2015

Shs 'm Shs 'm Shs 'm Shs 'mAt the start of the year/period 40,681 47,399 40,681 47,399Amortisation charge (4,479) (6,718) (4,479) (6,718)

At the end of year/period 36,202 40,681 36,202 40,681

(88)



NOTES (CONTINUED)

24 DEFERRED INCOME TAX (ASSET)/ LIABILITY

Deferred tax is calculated on all temporary differences under the liability method using aprincipal tax rate of 30%. The details of the deferred tax are as follows:

At start of At end ofperiod periodShs 'm Shs 'm

Year ended 30th June 2016ConsolidatedDeferred income tax liabilitiesAccelerated capital deductions 310,836 369,888Revaluations 301,526 985,708Fair valuation of loans 130,410 163,366

742,772 1,518,962Deferred income tax assetsTax loss carried forward (711,614) (836,800)Accumulated discount unwinding (56,943) (68,674)Provisions (38,602) (81,479)

1807,159 (986,953)Net deferred tax asset/(liability) (64,387) 532,009

Net deferred tax asset not recognized (439,380) (548,391)Net deferred tax liability recognized 374,993 1,080,400Net deferred tax not recognized 64,387 532,009

At start of At end ofperiod periodShs 'm Shs 'm

Year ended 30t June 2016SeparateDeferred income tax liabilitiesAccelerated capital deductions 310,836 369,878Revaluations 301,526 985,708Fair Valuation of loans 130,410 163,366

742,772 1,518,952Deferred income tax assetsTax loss carried forward (711,614) (835,693)Accumulated discount unwinding (56,943) (68,674)Provisions (38,602) (81,475)

(807,59) (985,842)Total deferred tax assetsl(Iiability) (62,982) 533,110

Net deferred tax asset not recognized (437,975) (547,290)Net deferred tax liability recognized 374,993 1,080,400

Deferred tax not recognized (62L982) 533,110

(89)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30. JUNE 2016

NOTES (CONTINUED)

24 DEFERRED INCOME TAX (ASSET)/ LIABILITY (CONTINUED)At start of At end of

period periodShs 'm Shs 'm

Year ended 301h June 2015ConsolidatedDeferred income tax liabilitiesAccelerated capital deductions 396,943 310,836Revaluations 151,816 301,526Fair valuation of loans - 130,410

548,759 742,772Deferred income tax assetsTax loss carried forward (660,914) (711,614)Accumulated discount unwinding - (56,943)Provisions (28,037) (38,602)

(688,951) (807,159)Net deferred tax asset (140,192) (64,387)

Net deferred tax asset not recognized (140,192) (439,380)Net deferred tax liability recognized - 374,993Net deferred tax not recognized (140,192) (64,3871

Year ended 30 th June 2015SeparateDeferred income tax liabilitiesAccelerated capital deductions 396,943 310,821Revaluations 151,816 301,526Fair valuation of loans - 130,410

548,759 742,757Deferred income tax assetsTax loss carried forward (660,914) (710,194)Accumulated discount unwinding - (56,943)Provisions (28,037) (38,602)

(]688,951 (805,739)Net deferred tax assets (140,192) (62,982)

Net deferred tax asset not recognized (140,192) (437,975)Net deferred tax liability recognized - 374,993

Net deferred tax not recognized (140,192) (62,982)

The Group has a potential deferred tax asset of Shs 548,391 million (30th June 2015: Shs439,380 million) mainly arising on account of tax losses and provisions. In the opinion ofdirectors, it is prudent not to recognize the asset due to the fact that the directors areuncertain whether sufficient taxable profits will be generated in the foreseeable future againstwhich the asset can be utilized.

(90)



NOTES (CONTINUED)

25 INVENTORIESConsolidated Separate2016 2015 2016 2015

Shs'm Shs'm Shs'm Shs'mGeneral stores 5,467 11,691 5,467 11,691Engine and vehicle parts 1,102 409 1,102 409Combustibles 7,484 8,107 7,484 8,107Others 304 216 304 216

14,357 20,423 14,357 20,423Provision for obsolete items (1,415 __(1,084) (1,415) (1,084)

Net inventory balance 12,942 *1912,942 *19,339

* During the year, the Group modified the classification of specific inventory items from inventory to capital work inprogress. These items includes meter stocks, poles, transformers, electric cables and other electrical equipmentwhich are used in the construction of transmission and distribution lines and expected to be used in more than oneperiod. The modification resulted into a reclassification of Shs 216 billion relating to prior year from inventory tocapital work in progress.

Amount of charges arising from use of inventory in the profit and loss is Shs 238 billion (2015:Shs 455 billion).

(91)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30" JUNE 2016

NOTES (CONTINUED)

26 TRADE AND OTHER RECEIVABLES


Shs 'm Shs 'm Shs 'm Shs 'mTrade receivablesGeneral trade receivables 201,253 199,161 201,253 199,161Government trade receivables 129,298 241,494 129,298 241,494

330,551 440,655 330,551 440,655

Provision for trade receivables impairments* (161,582) (132,439) (161,582) (132,439)

Net trade debtors 168,969 308,216 168,969 308,216

Other debtors:Rural electrification refund 7,538 7,538 7,538 7,538Other balances due from the Government - 16,833 - 16,833Chargeable work orders 850 898 850 898Receivable from Independent PowerTanzania Limited 3,199 6,539 3,199 6,539Deposits 11,535 11,424 11,535 11,424Staff debtors 573 391 573 391Value Added Tax recoverable 26,205 6,938 26,205 6,938Intercompany receivable - - 2,796 -Sundry debtors 16,049 12,752 16,049 13,320

65,949 63,313 68,745 63,881Provision for other receivables (impairment) (16,334) (36,837 _(16,334) (36,837)

Net other debtors 49,615 26,476 52,411 27,044

Net total debtors 218,584 334,692 221,380 335,260

*The Company's policy is that none of government trade receivables should be impaired except as otherwiseindicated and as such no impairment allowance has been made for Government trade receivables.

The Company exposure to credit and market risks and impairment losses related to tradereceivable are disclosed in note 8 (b).

(92)



NOTES (CONTINUED)

27 BANK AND CASH BALANCES

(a) Cash and cash equivalents in the statement of financial position



Cash 4,609 3,950 4,270 3,950Bank balances 124,900 159,736 124,900 159734

129,509 *163,686 129,170 *163,684

* During the year, the Group modified the classification of cash held with commercial banks as collateral for longterm borrowings from bank and cash balances to restricted deposits/funds within the statement of financial position.The modification resulted into a reclassification of Shs 65 billion relating to prior year from bank and cash balancesto restricted deposits/funds. Cash collaterals and cash covers are not highly liquid asset,

(b) Restricted deposits/funds

The main component of restricted deposits/funds is the amount withheld by the lendingcommercial banks as collateral in the Shs 408 Billion loan facility.


Shs 'n Shs 'm Shs 'm Shs 'm408 Billion Collateral (Refer to Note 30(n) &(o)) 54,550 65,275 54,550 65,275Other cash covers 18,172 - 18,172 -

72,722 65,275 72,722 65,275Presented as:

Current 60,382 54,551 60,382 54,551

Non-current 12,340 10,724 12,340 10,724

72,722 *65,275 72,722 *65,275

* During the year, the Group modified the classification of cash held with commercial banks as collateral for longterm borrowings from bank and cash balances to restricted deposits/funds within the statement of financial position.The modification resulted into a reclassification of Shs 65 billion relating to prior year from bank and cash balancesto restricted deposits/funds. Cash collaterals and cash covers are not highly liquid asset.

(93)



NOTES (CONTINUED)

28 CAPITAL AND RESERVES

(a) SHARE CAPITAL


Shs'm Shs'm Shs'm Shs'mAuthorised:120,000,000,000 ordinary shares of Shs 20each 2,400,000 2,400,000 2,400,000 2,400,000

Issued and fully paid:49,335,830,882 ordinary shares of Shs 20each 986,717 986,717 986,717 986,717

All the issued and fully paid shares are owned by the Government.

(94)



NOTES (CONTINUED)

28 CAPITAL AND RESERVES (CONTINUED)

(b) ADVANCES TOWARDS SHARE CAPITAL



At start of year/period 494,316 359,909 494,316 359,909Received during the year/period 112,435 134,407 112,435 134,407

At end of year/period 606,751 494,316 606,751 494,316

The advances toward share capital as at 30h June 2016 represent cash received from theGovernment of Tanzania Shs 225.5 billion (2015: Shs 190.0 billion) and reserve from the fairvaluation on initial recognition of interest free loan Shs 381.2 billion (2015: 304.3 billion). Thesecash from the Government will be converted to share capital upon receiving approval from theGovernment.

Amount received during the year/period is made up of,


Shs 'm Shs 'm Shs 'm Shs 'mCash receipts 35,536 26,005 35,536 26,005Fair valuation of low interest loans on initialrecognition, net of tax 76,899 108,402 76,899 108,402

112,435 134,407 112,435 134,407

Nature of reserves

(i) Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available forsale financial assets until the assets are derecognised or impaired.

(ii) Revaluation reserve

The revaluation reserves relates to the revaluation of property, plant and equipment.

(95)



NOTES (CONTINUED)

29 GRANTS

Consolidated

Donor Project 1t July 30m June2015 Addition Amortisation 2016


SIDA See (i) below 10,340 - (129) 10,211Oret (Government ofNetherlands) See (ii) below 32,946 - (2,082) 30,864TEDAP See (iii) below 68,077 22,876 (607) 90,346SongoSongo See (iv) below 15,943 - (571) 15,372Japanese See (v) below 28,729 - (810) 27,919Treasury-Emergency Power See (vi) below 261,847 - (11,925) 249,922Treasury See (vii) below 1,132,781 453,380 (24,124) 1,562,037World Bank See (viii) below 33,512 - (3,689) 29,823JICA Rehab KL See (ix) below 33,963 - (747) 33,216MCC T&D See (x) below 170,297 - (5,548) 164,749MEM See (xi) below 113 - (32) 81UNEP See (xi) below - 370 (23) 347ICEIDA See (xi) below - 441 (28) 413AfDB See (xi) below 319 313

1,788,548 477,386 (50,321) 2,215,613

SeparateDonor Proect 1$t Jul 3 0 t June

2015 Addition Amortisation 2016Shs 'm Shs 'm Shs 'm Shs 'm

SIDA See (i) below 10,340 - (129) 10,211Oret (Government ofNetherlands) See (ii) below 32,946 - (22082) 30,864TEDAP

See (ilN) below 68,077 22,876 (607) 90,346SongoSongo See (iv) below 15,943 - (571) 15,372Japanese See (v) below 28,729 - (810) 27,919Treasury-EmergencyPower See (vi) below 261,847 - (11,925) 249,922Treasury See (vii) below 1,132,781 453,380 (24,124) 1,562,037World Bank See (viii) below 33,512 - (3,689) 29,823JICA Rehab KL See (ix) below 33,963 - (747) 33,216MOC T&D See (x) below 170,297 - 5,548 164,749

1,788,435 476,256 (50,232) 2,214,459

(96)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30T" JUNE 2016

NOTES (CONTINUED)

29 GRANTS (CONTINUED)

Consolidated

Donor Project 1st Jan 30 June2014 Addition Amortisation 2015


SIDA See (i) below 10,533 - (193) 10,340Oret (Government ofNetherlands) See (ii) below 36,069 - (3,123) 32,946TEDAP See (iii) below 52,272 15,805 - 68,077Songo Songo See (iv) below 16,800 - (857) 15,943Japanese See (v) below 29,944 - (1,215) 28,729Treasury-Emergency Power See (vi) below 279,735 - (17,888) 261,847Treasury See (vii) below 358,610 791,000 (16,829) 1,132,781World Bank See (viii) below 39,046 - (5,534) 33,512JICA Rehab KL See (ix) below 35,084 - (1,121) 33,963MCC T&D See (x) below 163,088 17,495 (10,286) 170,297MEM See (xi) below - 129 (16) 113

1,021,181 824,429 (57,062) 1,788,548Separate

Donor Project 1st Jan 3 0th June2014 Addition Amortisation 2015


SIDA See (i) below 10,533 - (193) 10,340Oret (Governmentof Netherlands) See (ii) below 36,069 - (3,123) 32,946TEDAP See (iii) below 52,272 15,805 - 68,077SongoSongo See (iv) below 16,800 - (857) 15,943Japanese See (v) below 29,944 - (1,215) 28,729Treasury-Emergency Power See (vi) below 279,735 - (17,888) 261,847Treasury See (vii) below 358,610 791,000 (16,829) 1,132,781World Bank See (viii) below 39,046 - (5,534) 33,512JICA Rehab KL See (ix) below 35,072 - (1,109) 33,963MCC T&D See (x) below 163,088 17,495 (10,286) 170,297

1,021,169 824,300 (57,034) 1,788,435

(97)



NOTES (CONTINUED)


Analysis of projects by donor

(i) SIDA Consolidated Separate2016 2015 2016 2015

Shs 'm Shs 'm Shs 'm Shs 'mElectrification of Urambo 797 849 797 849Electrification of Serengeti 2,196 2,337 2,196 2,337132 kV TL Makambako and Songeaelectrification 7,347 7,347 7,347 7,347Amortisation charge (129) (193) (129) (193)At the end of the year/period 10,211 10,340 10,211 10,340

(ii) ORET (Government of Netherlands)Optical fibre cable communication system 11,023 12,459 11,023 12,45945MW Tegeta Plant 21,923 23,610 21,923 23,610Amortisation charges (2,082) (3,123) (2,082) .(3,123)At the end of the year/period 30,864 32,946 30,864 32,946

(iii) TEDAP (Projects 4370 TA)Transmission and Distribution systems -opening 68,077 52,272 68,077 52,272Received during the year 22,876 15,805 22,876 15,805Amortisation charges (607) - 60- (607) -At the end of the year/period 90,346 68,077 90,346 68,077

(iv) Songo Songo (Projects 3569 TA)Wayleave Village ElectrificationScheme(WVES) 15,943 16,800 15,943 16,800Amortisation charges (571) (857) (571) (857)At the end of the year/period 15,372 15,943 15,372 15,943

(v) Japanese GrantTransmission and Distribution Systems 28,729 29,944 28,729 29,944Amortisation charges (810) (1,215) (810) (1,215)At the end of the yearlperiod 27,919 28,729 2 28,729

(98)



NOTES (CONTINUED)



Shs 'm Shs 'm Shs 'm Shs 'm(vi) Treasury - Emergency Power

Ubungo II Gas Plant (100MW) 139,054 148,755 139,054 148,755Mwanza Plant (60MW) 122,793 130,980 122,793 130,980Amortization charges (11,925) (17,888) (11.,92 (17,888)At the end of the year/period 249,922 261,847 249,922 261,847

(vii) Treasury1.Treasury -Wartisila &Thermo

generatorsEPP- Wartisila 68,944 72,671 68,944 72,671Mbinga Gen Sets 3,647 3,868 3,647 3,868Ludewa Gen Sets 2,912 3,089 2,912 3,089Kigoma Gen Sets 12,393 13,062 12,393 13,062Kasulu Gen Sets 7,439 7,820 7,439 7,820Kibondo Gen Sets 7,589 7,978 7,589 7,978Sumbawanga Gen Sets 11,581 12,175 11,581 12,175Loliondo Gen Sets 13,069 13,739 13,069 13,739At the end of the year/period 127,574 134,402 127,574 134,402

2. Treasury- Rural electrification projectsRural electrification 5,825 6,073 5,825 6,073Electrification Makambako 35,712 132 35,712 132Electrification Mbinga 560 576 560 576Electrification of Msonga 170 174 170 174Electrification of Magindu 216 222 216 222Electrification of Mgwashi 712 730 712 730Electrification of Malya/Sumve 613 629 613 629Electrification of Mbewe 224 230 224 230Electrification of Bukombe and Kagera village

157 161 157 161Electrification of kilolo 1,618 1,661 1,618 1,661Electrification of Simanjiro 206 212 206 212Electrification of Mchinga 792 816 792 816Electrification of Tarime 89 91 89 91Electrification of Ludewa 329 339 329 339Electrification of Ihanja 663 681 663 681Electrification of Bukene 93 96 93 96Electrification of Mvumi 117 120 117 120Electrification of Berege 60 62 60 62Sub total 48,156 13,005 48,156 13,005

(99)



NOTES (CONTINUED)

29 GRANTS (CONTINUED)Consolidated Separate2016 2015 2016 2015

Shs 'm Shs 'm Shs 'm Shs 'nSubtotal continued 48,156 13,005 48,156 13,005Electrification of Mkinga 75 77 75 77Electrification of Uyui 1,280 1,318 1,280 1,318Electrification of Bahi 1,455 1,498 1,455 1,498Electrification of Matema beach 587 605 587 605Power supply to Chief Osward Mang'ombe 161 166 161 166Electrification of Ngage B 322 331 322 331Power supply to Mto wa mbu 294 303 294 303Electrification of Tabora-Kaliua 26 27 26 27Electrification of Bunda 118 122 118 122Electrification of Ukerewe 242 248 242 248Electrification of Serengeti 37 38 37 38Electricity V Project 97 100 97 100Mererani and Pangani water pumps 76 78 76 78Electrification of Konga and Mafia windpumps 70 72 70 72Electrification of Tungamalenga andelectricity villages 123 127 123 127Kigoma Generators 1,306 1,373 1,306 1,373Electrification of Kilindi 1,479 1,521 1,479 1,521Wayleave Villages electrification 656 675 656 675Rural Electrification projects 5,200 5,200 5,200 5,200GVT Kinyerezi Financing 338,893 321,763 338,893 321,763GVT Kinyerezi Financing 240 MW 140,000 - 140,000 -REA Funded Projects 16,199 16,199 16,199 16,199REA funded Projects Phase I 112,719 116,436 112,719 116,436REA funded Projects Phase II 741,169 505,064 741,169 505,064GVT Financing North west Grid 400 400 400 400GVT Financing Iringa Shinyanga - Backbone 220 220 220 220REA Electrification Sagamaganga Vilages 163 163 163 163Mpanda Generating Sets 11 486 486 486 486Electrification Majengo Village & Secondary 241 241 241 241Electrification Njoro Arusha 23 23 23 23Electrification Biharamulo/Ngara/Mpanda 10,500 10,500 10,500 10,500GVT Financing Orio contribution 11,500 - 11,500 -GVT Financing TEDAP contribution 190 - 190 -Sub total 1,434,463 998,379 1,434,463 998,379

Grand total 1,6O37 1,132,781 1,562,037 1,132,781

(100)



NOTES (CONTINUED)

29 GRANTS (CONTINUED)Consolidated Separate


WORLD BANK - Songas Capacity(viii) Charges buydown

Capacity Charges buydown 33,512 39,046 33,512 39,046Amortisation charges (3,689) (5,534) (3,689) (5,534)At the end of yearlperiod 29 823 33,512 29 823 33,512

(ix) JICA RehabilitationReceived 33,963 35,084 33,963 35,072Amortisation charges (747) (1,121) (747) (1,109)At the end of the yearlperiod 33,216 33,963 33,216 33,963

(x) MCC T &DDeferred capacity charges 170,295 163,088 170,295 163,088Addition during the year - 17,495 - 17,495Amortisation charges (55 (10,286) (5,548) (10,286)At the end of the yearlperiod 164,747 170,297 164,747 170,297

Ministry of Energy and Minerals (MEM),(xi) UNEP, ICEIDA and AfDB

At the start of the year/period 113 - -Additions 1,150 129 -

Amortisation charges (16) -

At the end of the year/period 1,174 113 - -

30 BORROWINGS



Loans 1,529,794 1,362,881 1,529,794 1,362,881Less: Current portion (637,268) *(519,126) (637,268) *(519,126)

Non-current portion 892,526 843,755 892,526 843,755

*During the year, the Group modified the classification of non-current portion of borrowings to current portion. Thereclassification relates to principal amount of loans that were defaulted and which were previously excluded from currentportion of the loans. The reclassification relating to prior year amounts to Shs 263 billion.

(101)



NOTES (CONTINUED)

30 BORROWINGS (CONTINUED)

The loan movements during the year for the Company is summarised below;Balance Exchange Balanceas at Ist Fair value gains! Discount Principal Interest as at 301h

Loan (Figures in Shs'm) Ref July 2015 Addition adjustment Interest losses unwinding paid paid June 2016Government Loan* a 109,758 - - - - 5,364 - - 115,122

Syndication loan b 5,513 - - 316 - - (5,000) (829) -

Govemment of Tanzania loan(Deferred capacity charge) c 292,968 48,581 (24,617) - - 19,110 - - 336,042ING Bank-Optical Fibre* d 36,544 - - - 2,741 270 - - 39,555ING Bank-Tegeta 45MW e 33,977 - - - 2,544 - - - 36,521IDA Credit 3569 TA-Songosongo' f 7,944 - - - 574 368 - - 8,886EDCF-TEDAP g 12,914 9,030 (5,993) - 1,156 1,040 - - 18,147ADF-Electricity V h 11,605 16,961 (12,976) - 1,349 1,032 - 17,971EDCF-KOREA (BTIP) i 10,653 26,868 (17,604) - 1,072 1,278 - - 22,267EIB-BITP j 39,950 21,905 (7,696) - 3,892 1,749 - - 59,600IDA Credit 4798 TA-BITP k 25,296 16,510 (11,555) - 1,803 1,949 - - 34,005ADF-BITP I 8,492 13,233 (9,375) - 4 752 - - 13,106JiCA-BITP m 9,255 25,653 (20,038) - 6,991 1,331 - - 23,192Syndicated loan 408A billion facility n 281,085 - - 37,126 - - (48,263) (34,018) 235,930Syndicated Loan 408B billion Facility a 174,017 - - 8,114 14,597 - (34,002) (8,390) 154,337On Lending Standard Bank* p 228,579 - - 16,725 16,685 - - - 261,989On Lending Ida - 30 Years q 74,329 - - 2,260 5,851 4,864 - - 87,304BADEA r - 49 - - - - - - 49TIB credit facility s - 32.290 - 2,257 - - - (1,747) 32,800NBC 15m short term facility t - 32,972 - 31 - - - (31) 32,972

1,362,881 244,052 (109,854) 66,829 59,059 39,107 (87,265) -(45,015) 1,529,794*These loans are defaulted and a description of the covenants breached are indcded under terms and conditions.

-Other finance fees amounting to Shs 790 million is not included in the interest paid shown in the table.

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CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 3 0T JUNE 2016

NOTES (CONTINUED)


The loan balance movements during the period for the Company is summarised below;

Ref Balance Balanceas at 1s as at 30thJanuary Fair value Exchange Discount Principal interest June

Loan (Figures in Shs 'm) 2014 Addition adjustment Interest gains/ losses unwinding paid paid 2015Government Loan' a 100,072 - 5,380 - 4,306 - - 109,758

Syndication loan b 54,086 - - 5,716 - - (48,000) (6,289) 5,513Govemment of Tanzania loan(Deferred capacity charge) c 237,515 58,710 (29,750) - 26,493 292,968ING Bank-Optical Fibre* d 34,265 - - 642 1,637 - - - 36,644ING Bank-Tegeta 45MW* e 32,706 - - - 1,271 - - - 33,977IDA Credit 3569 TA-Songosongo f 6,188 - - 635 1,121 - - - 7,944EDCF-TEDAP g 12,660 29,341 (34,699) - 4,454 1,158 - - 12,914ADF-Electricity V h 6,202 21,390 (25,395) 8,114 8,265 - - (6,971) 11,605EDCF-KOREA (BTIP) i 15,111 10,214 (21,021) 1,264 5,085 - - - 10,653EIB-BITP j 15,217 42,015 (22,662) 2,037 3,343 - - - 39,950IDA Credit 4798 TA-BITP k 14,542 56,732 (60,869) 2,407 12,486 - - - 25,298ADF-BITP I 10,067 19,142 (25,132) 37,126 6,512 1,432 - (40,655) 8,492JICA-BiTP m 7,579 18,048 (19,284) 925 1,987 - - - 9,255Syndicated loan 408A billion facility n 205,475 70,747 - 15,791 - - - (10,928) 281,085Syndicated Loan 408B billion Facility o 135,553 - - 1,717 37,948 - - (1,201) 174,017On Lending Standard Bank* p 158,868 - - 18,896 50,815 - - - 228,579On Lending Ida - 30 Years q 49,137 - - 3,761 12,361 9,070 - - 74,329CR0B Short Term Credit Facility 36,304 - - - - - (36,304) -

1,131,547 326,339 (238,812) 104,411 147,285 42,459 (84,304) **(66,044) 1,362,881*These loans are defaulted and a description of the covenants breached are included under terms and conditions

-Other finance fees amounting to Shs 4,249 million is not included in the interest paid shown in the table

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NOTES (CONTINUED)


TERMS AND CONDITION

a) This is the balance of the amount that was converted into equity on 1st January 2004. It is owedto the Government. This amount is repayable in 9 equal instalments starting 31s' December2008 after a grace period of 5 years. It bears the interest of 6.5% per annum. This loan isunsecured. The loan was fair valued on initial recognition.

No repayment for the loan has been made since 2008, the loan has been classified as current.The loan agreement contains a covenant stating that the Government may by notice toTANESCO call for immediate repayment of the balance for the time being outstanding of theloan amount if TANESCO defaults for a period of 30 days in repayment of any amount due ofthe loan amount.

b) This is a Shs 300 billion syndicated loan facility. The loan was secured on 3 0 th August 2007.The loan tenure was 6 years with a grace period of 18 months. The interest rate for the loan isthe aggregate of the applicable margin with reference to the 182-day Treasury bill rate. As atperiod end, the loan was fully repaid.

c) The amount arises from capacity charges by Songas Limited on which the Company hasnegotiated deferred payment terms with the Government. This amount is unsecured and isinterest free. The capacity charges deferred each month are repayable twenty years from thedate of deferment.

d) The loan from ING Bank was received through the Government for the Optic Fibre Project. It isdenominated in Euros and carries an interest of 5% per annum. The loan is repayable in twenty(20) equal instalments of Euro 645,317.55 from 3 0th December 2007 and it was expected to befully repaid by 3 1st July 2017. The loan is defaulted as neither interest nor principal in relation tothe loan has been paid.

e) This loan from ING Bank was received through the Government for the Tegeta 45 MW Project.It is denominated in Euros. The Company is yet to receive the on-lending terms from theGovernment.

f) This loan from IDA was received through the Government for implementation of parts C.3 andC.5 of Songo Songo Island Project. The loan is denominated in SDR and carries an interestrate of 7.1% per annum and is repayable in 20 equal annual instalments of SDR 36,964.23which started from 3 0th April 2012. The loan is defaulted as neither interest nor principal hasbeen paid.

g) This loan from Economic Development Cooperation Fund (EDCF) of the Government of theRepublic of Korea was received through the Government for the implementation of constructionof the 132kv Transmission Line from Kilimanjaro to Arusha and the Rehabilitation of KiyungiSubstation under TEDAP. The loan is donated in US Dollars and carries an interest rate of0.01% per annum and is repayable in 50 semi-annual instalments starting from year 2020.

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NOTES (CONTINUED)


TERMS AND CONDITION

h) This loan from African Development Fund (ADF) was received through the Government tofinance Electricity V project. The loan is denominated in UA and carries an interest of 1% perannum for first 20 years after a grace period of 10 years and 3% per annum thereafter; the loanis repayable for a period of 40 years starting from year 2020.

i) This loan from Economic Development Cooperation Fund (EDCF) by the Government of theRepublic of Korea was received through the Government for the implementation of constructionof the 400kv Transmission Line from Iringa to Shinyanga and construction of Substations atIringa, Dodoma, Singida and Shinyanga under the Backbone Transmission Investment Project(BTIP). The loan is denominated in USD and carries an interest rate of 0.01% per annum andis repayable in 50 semi-annual instalments starting from year 2020,

j) European Investment Bank (EIB) - This loan is from EIB was received through theGovernment of Tanzania for the implementation of construction of a 400kV Transmission Linefrom Singida to Shinyanga under the BTIP. The loan is disbursed in EURO and carries aninterest rate 2.9% per annum repayable semi-annually for a period of 25 years, after five yearsgrace period, starting 2020.

k) IDA Credit 4798 - This loan from IDA was received through the Government of the UnitedRepublic of Tanzania for the implementation of construction of a 400kV Transmission Line fromIringa to Dodoma under BTIP. The loan is denominated in SDR and carries an interest rate of1% per annum from 15 August 2020 to 15th February 2030 and 2% from 151h August 2030 to15th February 2050 repayable semi-annually for a period of 40 years starting 2020.

1) ADF - BITP This loan from African Development Fund (ADF) was received through theGovernment of the United Republic of Tanzania for the implementation of construction of a400kV Transmission Line from Dodoma to Singida under the BTIP. The loan is denominated inUA and carries an interest of 1% per annum for first 20 years after a grace period of 10 yearsand 3% per annum thereafter; the loan is repayable for a period of 40 years starting from year2022.

m) JICA - BITP - This loan is from Japan International Cooperation Agency (JICA) was receivedthrough the Government of the United Republic of Tanzania to finance the BITP. The loan isdenominated in Japanese Yen and carries an interest of 0.01% per annum including a graceperiod of 10 years repayable semi-annually for a period of 40 years stating 2021.

n) This is Shs 408 billion Syndicated loan facility A, this is a Tanzania Shillings portion of loan andthe applicable rate of interest for amounts advanced under this facility is Government ofTanzania 182-day Treasury bill rate plus the agreed margin of 4.50%. The Company received85% of the loan amount while the 15% has been withheld by the lenders as collateral.

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NOTES (CONTINUED)


TERMS AND CONDITION

o) This is Shs 408 billion Syndicated loan facility B with grace period of three years started, thiscarry USD portion of loan and the applicable rate of interest for amounts advanced under thisfacility is six month LIBOR plus the agreed margin of 5%.The effective rate charged in 2013was 5.25%. The Company received 85% of the loan amount while the remaining 15% hasbeen withheld by the lenders as collateral.

p) Government on lent Standard Bank, this loan was received from Government. The Company isrequired to pay the principal amount of the facility in semi-annual instalment for a period of 5years including a grace period of 2 years. This facility carries an interest of 6% plus 6 MonthLIBOR. The interest rate started accruing from the date the loan was disbursed: 151h August2013. The loan is denominated in US Dollars. The loan is defaulted as neither interest norprincipal has been paid.

q) Government on lent IDA (Credit No. 5215 - TZ), this loan received from the Government withgrace period of 10 years and payable for 30 years. Its interest rate is as follows:

From 15th August 2023 to 15th February 2033 interest 1% and from 151h February 2033 - 15thFebruary 2053 interest is 2%. The amount received in 2013 was US Dollars 100,000,000 whichwas fair-valued to US Dollars 30,787,852 on initial recognition. The remaining balance wasrecognised as government contribution.

r) Government on lent the loan to TANESCO during the year. This loan was lent from The ArabBank for Economic Development in Africa (BADEA) in 2011 at an interest rate of 1 %. The loanis denominated in US Dollar. The repayment period is from 2026 to 2046 with a grace period of10 years. The loan is for financing the Geita electrification project.

s) This is a short term loan from the TIB Development Bank Limited in association with otherlenders. The interest is charged at 16%. The repayment period of the loan is 8 months from thedisbursement date. The loan is in Tanzanian shillings. The loan was acquired purposely forfinancing the cost of resettlement action plan including compensation costs covering 198Kilometers from Somanga Fungu, Kilwa District to Kinyerezi, Ilala District, Dar es Salaam. Theloan has been secured by creating a specific debenture which has created a first rankingcharge over Ubungo II Power Plants assets both movable and immovable.

t) This is a short term loan from National Bank of Commerce (NBC) received during the period.The loan is charged interest at 16.5% per annum. The loan is in Tanzanian shillings. The loanis repaid in one year.

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NOTES (CONTINUED)

31 OTHER EMPLOYMENT BENEFITSConsolidated Separate2016 2015 2016 2015

Shs 'm Shs 'n Shs 'm Shs 'mAt the start of the year/period 24,119 22,482 24,119 22,482Current service cost 2,599 1,975 2,599 1,975Interest cost 868 4,420 868 4,420Benefits paid (3,334) (4,758) (3,334) (4,758)

At the end of the year/period 24,252 24,119 24,252 24,119

Actuarial assumptionsDiscount rate per annum 16.0% 12.0% 16.0% 12.0%Future increase in cash lumpsum award amounts per annum 10% 10% 10% 10%Mortality (pre-retirement) Al 949-1952 A1949-1952 A1949-1952 A1949-1952

A rate with A rate with A rate with A rate withsimilar similar similar similar

Withdraws (voluntary) arrangement arrangement arrangement arrangementRetirement age Age 60 Age 60 Age 60 Age 60

The actuarial valuation of the Group's other employment benefits were carried out inaccordance with the requirements of International Accounting Standards 19-Employeebenefits.

32 TRADE AND OTHER PAYABLESConsolidated Separate


CurrentTrade payables 873,023 738,810 872,853 738,810Advances against work orders 41,290 37,069 41,290 37,069EWURA and REA 15,056 24,746 15,056 24,746Customers with credit balances 2,810 2,224 2,810 2,224TANESCO Employees Trust Deed Fund 106 106 106 106Deferred revenue from government 9,640 1,226 9,640 1,226Deferred LUKU sales 5,159 4,963 5,159 4,963Accrued expenses 54,891 46,312 54,888 46,312North Mara and Pangea Mining companies 7,836 9,209 7,836 9,209Provisions for energy purchase 47,714 24,025 47,714 24,025Other payables 129,713 91,228 129,686 91,228

1,187,238 979,918 1,187,038 979,918

The Group's exposure to currency risk and liquidity risk related to trade & other payable isdisclosed in Note 8 (b).

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NOTES (CONTINUED)

33 CONSUMER DEPOSITS AND DEFERRED INCOMEConsolidated Separate2016 2015 2016 2015


Consumer deposits 16,408 16,301 16,408 16,301Deferred income* 4,864 4,864 4,864 4,864

Balance as at 30"' June 2016 21,272 21165 21,272 21,165

*The deferred income is the day-1 gain on fair valuation of amount payable to IPTL in respect of the settlement ofpreviously disputed capacity charges.

34 CASH GENERATED FROM OPERATIONSConsolidated Separate

2016 2015 2016 2015Note Shs 'm Shs 'm Shs 'm She 'm

Operating activitiesLoss before tax (358,487) (27,094) (355,330) (25,488)Adjustments for:Depreciation 16 140,617 152,062 140,478 152,025Revaluation loss 69,828 - 69,828 -Depreciation of investment property 181 272 181 272Interest expense 60,502 104,411 60,502 104,411Amortisation of AFUDC prepayment 23 4,479 6,718 4,479 6,718Amortisation of intangible asset 18 618 1,806 618 1,806Amortisation of grants 29 (50,321) (57,062) (50,232) (57,046)Share of loss of equity-accountedinvestees, net of tax 792 209 - -Impairment loss on receivables 8,640 - 8,640Discount unwinding 39,107 42,459 39,107 42,459Other employment benefits 133 1,637 133 1,637Net unrealized forex losses 111,308 179,315 111,308 179,315

27,397 404,733 29,712 406,109Changes in:- inventories 6,397 (112,071) 6,397 (112,071)- trade and other receivables 140,150 (83,942) 137,354 (84,510)- Prepayments 22 11,232 22 11,232- trade and other payables andconsumer deposits 124,022 122,405 124,390 122,405

Cash generated in operations 297,988 342,357 297,875 343,165

(108)



NOTES (CONTINUED)

35 CONTINGENT LIABILITIES

The Company is a defendant in various legal actions, which, in the opinion of the directors,after taking appropriate legal advice, will not give rise to any significant loss.

A significant legal case has been summarized below:

Standard Chartered Bank Hong Kong ("SCBHK") versus TANESCO (ICSID caseNo.ARB/10/20)

This is an arbitration case filed by Standard Chartered Bank Hong Kong (SCBHK) againstTANESCO in Sept 2010. SCBHK stepped in the shoes of Independent Power TanzaniaLimited) (IPTL) as lender by assignment by which time one of the shareholders of IPTL hadfiled a case to wind up IPTL. SCBHK requested a declaration that the shareholder loans inIPTL qualify as equity for the purpose of computing capacity charges and claimed USD 258.7million to be made to it by TANESCO. The claim was made up of outstanding invoices, intereston outstanding invoices and damages resulting from TANESCO's failure to pay IPTL for theservices rendered to it in accordance with the requirement of Power Purchase Agreement(PPA) with IPTL, together with any sums due under invoices that had not been disclosed toSCBHK.

The Ruling (final award) issued on 12 th September 2016 required TANESCO to pay SCBHKUSD 148.4 million. The interest rate on the amount owing is simple three month LIBOR plus4% starting from 3 0 th September 2015. The payment would be enforceable if SCBHK registersthe Award in the Tanzanian Courts. This could have happened after the lapse of 120 days fromthe date of the award but did not.

TANESCO has disputed the award and it has instituted Annulment of the award proceedings atICSID. Parallel to applying for Annulment, TANESCO has prayed for and granted Stay ofEnforcement of the Award by the High Court of Tanzania at the High Court of Tanzania whichprevents SCBHK from enforcing the award.

SCBHK has filed counter memorials against memorials which were earlier filed by TANESCO.TANESCO has filed the rejoinder to counter memorial and Experts Reports on 2 16 August2017.

Legal advice obtained indicates that it is not probable that any liability will arise as thepossibility of losing the application for annulment is unanticipated. The Directors are of the viewthat no material losses will arise in respect of the legal claim at the date of these financialstatements and hence the Company has not made any provision against the claim.

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NOTES (CONTINUED)

35 CONTINGENT LIABILITIES

Jacobsen Elektro claim of USD 12.56 million for contract number. PAIOO/109IHQ/W/032for construction of Gas based power Generating plant of 100MW Gas turbine units atUbungo- Dar es Salaam.

Jacobsen Elektro is claiming USD 12.56 million from TANESCO on the ground that Jacobsenincurred losses resulting from the hedging contracts that Jacobsen entered when procuringmaterials needed for the project following delays by TANESCO to pay the agreed sums duringthe performance of the contract. Directors believe that TANESCO is not contractually liable forthe loss that Jacobsen has incurred based on the terms of contract hence have not raised aprovision in these financial statements.

The directors are not aware of any other material contingencies as at the reporting date.

36 COMMITMENTS

a) Capital commitments

The Board of Directors approved capital commitments of Shs 433,595 million (2015: Shs727,165 million). Included in the approved capital commitments is Shs 17,771 million for on-going projects and Shs 92,001 million for new projects and service line connection.

b) Other commitments

Other commitments included overseas procurement of materials where payments is to be donethrough letters of credits opened at various commercial banks and locally purchased items byissuing local purchase orders as shown below:

2016 2015Shs 'm Shs 'm

Letter of credits with commercial banks 59,325 85,301Local purchase orders - (goods ordered but not yet delivered) 28,621 68,547

87,946 153,848

Independent Power Tanzania Limited (IPTL)

There is a commitment of Shs 66,180 million in respect of annual capacity charges. The PowerPurchase Agreement between the Company and IPTL is for 20 years and it commenced in2002.

SONGAS Limited

There is a commitment of Shs 129,793 million in respect of annual capacity charges. ThePower Purchase Agreement between the Company and SONGAS is for 20 years and itcommenced in 2003.

(110)



NOTES (CONTINUED)

37 RELATED PARTY TRANSACTIONS AND BALANCES

The Company is wholly owned by the Government.

Related parties in the books of TANESCO include national departments/Ministries, publicentities and local government (including municipalities).

TANESCO's transactions with the local Government offices and Government ExecutiveAgencies are not individually significant when compared to the total value of the transactionsbetween TANESCO and other government related parties and are therefore not disclosedseparately. These include, among others, transactions as a result of services provided togovernment hospitals and libraries.

Related parties also comprise key management personnel of TANESCO or its shareholder andclose family members of these related parties.

The following transactions were carried out with related parties;


to 30 to 30m to 30th to 30*hJune 2016 June 2015 June 2016 June 2015

Shs 'm Shs'm Shs'm Shs'mTransactions:Sales of electricity

National departments/ministries 50,101 78,794 50,101 78,794Local governments 1,259 2,452 1,259 2,452Public entities 4,151 7,011 4,151 7,011Zanzibar Electricity Corporation 74,778 107,252 74,778 107,252

130,289 195,509 130,289 195,509

(111)



NOTES (CONTINUED)

37 RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED)

Government grants towards 12 months 18 months 12 months 18 monthscapacity charges, fuel and energy to 3 0m to 3 0t to 30th to 3 0mcharges and other operating June 2016 June 2015 June 2016 June 2015expenses Shs 'm Shs 'm Shs 'm Shs 'mMinistry of Energy and Minerals(MEM) 6,754 156,344 6,754 156,344

Rural Electrification Agency (REA) 236,105 633,632 236,105 633,632242,859 789,976 242,859 789,976

Purchases of goods and servicesNational departments/ministries 1,855 - 1,855 -Local government 2,028 - 2,028 -

Public entities 163,632 1,126 163,632 1,126

167,515 1,126 167,515 1,126

Expenses paid by TANESCO forTGDC 2,466 1,414 - -

2,466 1,414 - -

Outstanding balances (due from 2016 2015 2016 2015related parties) Shs 'm Shs 'm Shs 'm Shs 'mReceivables and amounts owed byrelated partiesTGDC 2,796 568 2,796 568National departments/ministries 21,252 114,852 21,252 114,852Local government 694 1,332 694 1,332Public entities 3,732 2,440 3,732 2,440Zanzibar Electricity Corporation 106,950 122,870 106,950 122,870

135,424 242,062 135,424 242,062

Outstanding balances (due torelated parties)Payables and amounts owedto related partiesPublic entities 15,056 24,746 15,056 24,746

BorrowingsGovernment on-lent loans 30 1,073,756 902,26 1,073,756 902,266

Guarantees receivedGovernment of United Republicof Tanzania 325,505 369,861 325,505 369,861

(112)


CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30r" JUNE 2016

NOTES (CONTINUED)


Directors and key management personnel remuneration

Consolidated 12 months 18 monthsto 30t to 3 0th

June 2016 June 2015Shs'm Shs'm

Fees and Sitting allowancesNon-executive directorsDr. Mighanda J. Manyahi 34 23Dr. Nyamajeje C. Weggoro 15 14Dr. Haji H. Semboja 24 19Dr. Mutesingwa Maingu 23 19Eng. Juma F. Mkobya 26 12Eng. Boniface C. Muhegi 24 13Mr. Shaaban Kayungilo 27 13Ms Kissa V. Kilindu 25 14Mr. Felix G. Kibodya 31 18Gen. Robert P. Mboma - 95Mr. B. E. Luhanga - 50Mr. Abdul I. Kitula - 60Mr. L. Masanja - 53Mr. V. Mbiro - 51Hon. V. Mwambalaswa - 112Mr. B. P. Segeja 1 56Mr. H. A. Mbarouk - 42Mr. R.M. Masudi - 50Dr. Alexander L. Kyaruzi 8 -Dr. Samwel Nyantahe 6 -Mr. David Elias Alai 6 -Eng. Stephen P. Mabada 6 -Dr. Lugano Wilson 6 -Eng. Leonard R. Masanja 6 -Eng. Felchesmi Mramba 1 -Others 15 -Total non- executive directors 284 714

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NOTES (CONTINUED)


Consolidated 12 months 18 months 12 months 18 months 12 months 18 monthsto 30t to 30h to 30th to 30th to 301h to 30t

June 2016 June 2015 June 2016 June 2015 June 2016 June 2015Shs'm Shs 'm Shs'm Shs'm Shs'm Shs'm

Salary and post- Fees and Sitting Social security costsretirement benefits allowances (defined contribution

scheme)Key management 1,928 2,603 57 171 252 338Total 1,928 2,603 57 171 252 338

Directors and key management personnel remuneration

Separate 12 months 18 monthsto 3 0t to 30t

June 2016 June 2015Shs 'm Shs 'mFees and Sitting

allowancesNon-Executive directorsDr. Mighanda J. Manyahi 34 23Dr. Nyamajeje C. Weggoro 15 14Dr. Haji H. Semboja 24 19Dr. Mutesingwa Maingu 23 19Eng. Juma F. Mkobya 26 12Eng. Boniface C. Muhegi 24 13Mr. Shaaban Kayungilo 27 13Ms Kissa V. Kilindu 25 14Mr. Felix G. Kibodya 31 18Gen. Robert P. Mboma - 95Mr. B. E. Luhanga - 50Mr. Abdul 1. Kitula - 60Mr. L. Masanja - 53Mr. V. Mbiro - 51Hon. V. Mwambalaswa - 112Mr. B. P. Segeja - 56Mr. H. A. Mbarouk - 42Mr. R.M. Masudi - 50Dr. Alexander L. Kyaruzi 8 -Dr. Samwel Nyantahe 6 -Mr. David Elias Ala[ 6 -Eng. Stephen P. Mabada 6 -Dr. Lugano Wilson 6 -Eng. Leonard R. Masanja 6 -Others 15 -

Total non- executive directors 282 714

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NOTES (CONTINUED)


Separate 12 months 18 months 12 months 18 months 12 months 18 monthsto 30" to 301h to 30& to 30t to 30"h to 30

June 2016 June 2015 June 2016 June 2015 June 2016 June 2015Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm Shs 'm

Salary and post- Fees and Sifting Social security costsretirement benefits allowances (defined contribution

scheme)Key management 1,928 2,603 57 171 252 338

Total 1,928 2,603 57 171 252 338

Key management personnel are described as those persons having authority and responsibilityfor planning, directing and controlling the activities of the Company.

38 OPERATING LEASES

The Company has operating lease arrangements for some of its office buildings andwarehouses. The period of those lease agreements range between one to five years and theleases are renewable. The following is a summary of lease commitments that the Company hasas at the year-end;

Consolidated Separate


Leases within one year 258 14 251 14Leases between one to two years 212 181 100 181Leases above three years 788 1,071 788 1,071

1,258 1,266 1,139 1,266

39 ULTIMATE OWNER OF THE COMPANY

The Government of the United Republic of Tanzania is the ultimate owner of the Company.

40 CURRENCY

These financial statements are presented in millions of Tanzanian Shillings (Shs 'm) unlessotherwise specifically stated.

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CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30T JUNE 2016

NOTES (CONTINUED)

41 SUBSEQUENT EVENTS

The events summarised below happened subsequent to the reporting date. These are non-adjusting events.

Symbion Power (Tanzania) Limited Case

Symbion Power (Tanzania) Ltd ("Symbion") purports to have signed a Power PurchaseAgreement (PPA) on 1 0 th December 2015 with TANESCO. However, as per available records,the same had been put on hold on the ground that the government was scrutinizing theagreement and that being the case the parties continued with an interim arrangement whichwas in effect since 16th September 2015 to generate power while awaiting the outcome of thereview of the PPA.

In March, 2016 TANESCO wrote a letter to Symbion informing them the fate of the PPA aftergovernment scrutiny. Being dissatisfied, on 131h March 2017, Symbion decided to seekrecourse in the International Chamber of Commerce (ICC). Symbion is claiming approximatelyUSD 561 million from TANESCO due to the alleged cessation of the intended PPA.

The Tribunal for hearing of the Arbitral proceeding has been constituted by appointment of twoarbitrators and the president thus the proceeding for determination of Terms of Reference andCase Management Conference shall take effect on 3 01h October 2017 in London.

Legal advice obtained indicates that it is not probable that any liability will arise. The Directorsare of the view that no material losses will arise in respect of the legal claim at the date of thesefinancial statements and hence the Company has not made any provision against the claim.

Independent Power Tanzania Limited (IPTL) Power Purchase Agreement

Subsequent to the year end, on 1 5 th July 2017, the Company stopped buying power from IPTLdue to expiry of the power generation license.

The directors are not aware of any other event that requires adjustment to the financialstatements and/or disclosure other than those already mentioned here and in note 35.

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Documents

THE UNITED REPUBLIC OF TANZANIA NATIONAL AUDIT OFFICEdocuments.worldbank.org/curated/en/967891509718815045/... · 2017-11-04 · the united republic of tanzania national audit office